** **

**UNITEDSTATES********SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

**Form 10-Q**

 

**QuarterlyReport pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934**

 

**For the quarterly period ended September 30, 2005**

 

**Commission File Number   001-16379**

 

**DendriteInternational, Inc.**

(Exact name of registrant as specified in its charter)

 

| **New Jersey**                  | ** ** | **22-2786386**      |
|---------------------------------|------------|---------------------|
| (State or other jurisdiction of |       | (I.R.S. Employer    |
| incorporation or organization)  |       | Identification No.) |

 

| **1405 U.S. Highway 206**        |
|----------------------------------|
| **Bedminster, NJ 07921**         |
| (Address, including zip code, of |
| principal executive offices)     |

 

| **(908) 443-2000**                                        |
|-----------------------------------------------------------|
| (Registrant’s telephone number, including area code) |

 

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months, and (2) has been subject to suchfiling requirements for the past 90 days.ý yes o no

 

Indicateby check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Act): ýyes o no

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act): oyes ý no

 

Asof October 31, 2005, 43,417,840 shares of Dendrite International, Inc. nopar value common stock were outstanding.

 

----

 

**DENDRITE INTERNATIONAL, INC.**

**INDEX TO QUARTERLY REPORT ON FORM 10-Q**

**FOR THE QUARTER ENDED SEPTEMBER 30, 2005**

 
| **PART I.**  | **FINANCIAL INFORMATION**                                                                                        |   |
|-------------------|------------------------------------------------------------------------------------------------------------------|--------|
|              |                                                                                                             |   |
| **ITEM 1.**       | Financial  Statements                                                                                            |   |
|              |                                                                                                             |   |
|              | Consolidated Statements of  Operations (unaudited)  Three and nine months ended September 30, 2005 and 2004 | 3      |
|              |                                                                                                             |   |
|              | Consolidated Balance Sheets  (unaudited)  September 30, 2005 and December 31, 2004                     | 4      |
|              |                                                                                                             |   |
|              | Consolidated Statements of  Cash Flows (unaudited)  Nine months ended September 30, 2005 and 2004           | 5      |
|              |                                                                                                             |   |
|              | Notes to Unaudited  Consolidated Financial Statements                                                            | 6      |
|              |                                                                                                             |   |
| **ITEM 2.**       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                      | 15     |
| ** **        |                                                                                                             |   |
| **ITEM 4.**       | Controls and  Procedures                                                                                         | 31     |
| ** **        | ** **                                                                                                       |   |
| **PART II.** | **OTHER  INFORMATION**                                                                                           | 31     |
| ** **        |                                                                                                             |   |
| **ITEM 6.**       | Exhibits                                                                                                         | 31     |
|              |                                                                                                             |   |
| **Signatures**    |                                                                                                             | 32     |

 

2

----

 

PART I.     FINANCIALINFORMATION

 

ITEM1.     Financial Statements

 

**DENDRITE INTERNATIONAL, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(IN THOUSANDS, EXCEPT PER SHARE DATA)**

**(UNAUDITED)**

 
| ** **                                 | ** ** | **THREE MONTHS ENDED** | ** ** | **NINE MONTHS ENDED** | ** ** |
|--------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **SEPTEMBER 30,**      | ** ** | **SEPTEMBER 30,**     | ** ** |
| ** **                                 | ** ** | **2005**               | ** ** | **2004**              | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues                                   |       | $                      | 114,360    |                  | $          | 99,428 |   | $ | 328,873 |   | $ | 294,399 |   |
|                                       |       |                   |       |                  |       |   |   |   |   |
| Operating Costs & Expenses:            |       |                   |       |                  |       |   |   |   |   |
| Operating costs                            |       | 61,252                 |       | 51,578                |       | 173,732 |   | 151,807 |   |
| Selling, general and administrative        |       | 33,395                 |       | 32,832                |       | 103,258 |   | 98,923 |   |
| Research and development                   |       | 1,343                  |       | 1,673                 |       | 4,615 |   | 7,417 |   |
| Facility and other charges                 |       | —                 |       | —                |       | 9,372 |   | — |   |
| Amortization of acquired intangible assets |       | 960                    |       | 1,214                 |       | 3,340 |   | 3,467 |   |
| Other operating (income)                   |       | —                 |       | (368                  | )          | — |   | (707 | ) |
| Total operating costs & expenses       |       | 96,950                 |       | 86,929                |       | 294,317 |   | 260,907 |   |
|                                       |       |                   |       |                  |       |   |   |   |   |
| Operating income                           |       | 17,410                 |       | 12,499                |       | 34,556 |   | 33,492 |   |
|                                       |       |                   |       |                  |       |   |   |   |   |
| Interest (income) expense, net             |       | (150                   | )          | 14                    |       | (315 | ) | 11 |   |
| Other expense (income), net                |       | 35                     |       | (190                  | )          | 32 |   | (251 | ) |
|                                       |       |                   |       |                  |       |   |   |   |   |
| Income before income tax expense           |       | 17,525                 |       | 12,675                |       | 34,839 |   | 33,732 |   |
| Income tax expense                         |       | 6,747                  |       | 4,880                 |       | 13,413 |   | 12,987 |   |
|                                       |       |                   |       |                  |       |   |   |   |   |
| Net income                                 |       | $                      | 10,778     |                  | $          | 7,795 |   | $ | 21,426 |   | $ | 20,745 |   |
|                                       |       |                   |       |                  |       |   |   |   |   |
| Net income per share:                      |       |                   |       |                  |       |   |   |   |   |
| Basic                                      |       | $                      | 0.25       |                  | $          | 0.19 |   | $ | 0.50 |   | $ | 0.50 |   |
| Diluted                                    |       | $                      | 0.24       |                  | $          | 0.18 |   | $ | 0.49 |   | $ | 0.48 |   |

 

The accompanying notes are an integral part of these consolidatedstatements.

 

3

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**DENDRITE INTERNATIONAL, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(IN THOUSANDS, EXCEPT SHARE DATA)**

**(UNAUDITED)**

 
| ** **                                                                                                                                                                                                    | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|------------------|------------|
| ** **                                                                                                                                                                                                    | ** ** | **2005**          | ** ** | **2004**         | ** ** |
| **Assets**                                                                                                                                                                                                    |
|                                                                                                                                                                                                          |       |              |       |             |       |
| Current Assets:                                                                                                                                                                                               |       |              |       |             |       |
| Cash and cash equivalents                                                                                                                                                                                     |       | $                 | 64,618     |             | $          | 64,020 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $1,021 and $2,034, respectively                                                                                                               |       | 76,184            |       | 71,653           |       |
| Prepaid expenses and other current assets                                                                                                                                                                     |       | 7,079             |       | 6,935            |       |
| Deferred income taxes                                                                                                                                                                                         |       | 6,757             |       | 5,029            |       |
| Total current assets                                                                                                                                                                                          |       | 154,638           |       | 147,637          |       |
|                                                                                                                                                                                                          |       |              |       |             |       |
| Property and equipment, net of accumulated  depreciation of $58,400 and $56,499, respectively                                                                                                                 |       | 55,507            |       | 45,283           |       |
| Other assets                                                                                                                                                                                                  |       | 9,025             |       | 7,922            |       |
| Goodwill                                                                                                                                                                                                      |       | 91,409            |       | 80,963           |       |
| Intangible assets, net                                                                                                                                                                                        |       | 25,685            |       | 19,876           |       |
| Purchased capitalized software, net                                                                                                                                                                           |       | 598               |       | 1,056            |       |
| Capitalized software development costs, net                                                                                                                                                                   |       | 10,339            |       | 9,170            |       |
| Deferred income taxes                                                                                                                                                                                         |       | 9,640             |       | 9,873            |       |
|                                                                                                                                                                                                          |       | $                 | 356,841    |             | $          | 321,780 |   |
| **Liabilities and Stockholders' Equity**                                                                                                                                                                      |
|                                                                                                                                                                                                          |       |              |       |             |       |
| Current Liabilities:                                                                                                                                                                                          |       |              |       |             |       |
| Accounts payable                                                                                                                                                                                              |       | $                 | 10,495     |             | $          | 8,171 |   |
| Income taxes payable                                                                                                                                                                                          |       | 8,265             |       | 12,013           |       |
| Capital lease obligations                                                                                                                                                                                     |       | 1,467             |       | 1,689            |       |
| Accrued compensation and benefits                                                                                                                                                                             |       | 16,047            |       | 14,662           |       |
| Accrued professional and consulting fees                                                                                                                                                                      |       | 6,320             |       | 7,413            |       |
| Accrued facility and other charges                                                                                                                                                                            |       | 2,103             |       | —           |       |
| Other accrued expenses                                                                                                                                                                                        |       | 15,135            |       | 19,284           |       |
| Purchase accounting restructuring accrual                                                                                                                                                                     |       | 1,925             |       | 3,000            |       |
| Deferred revenues                                                                                                                                                                                             |       | 13,870            |       | 13,347           |       |
| Total current liabilities                                                                                                                                                                                     |       | 75,627            |       | 79,579           |       |
|                                                                                                                                                                                                          |       |              |       |             |       |
| Capital lease obligations                                                                                                                                                                                     |       | 2,068             |       | 3,036            |       |
| Purchase accounting restructuring accrual                                                                                                                                                                     |       | 3,224             |       | 4,143            |       |
| Accrued facility and other charges                                                                                                                                                                            |       | 4,497             |       | —           |       |
| Deferred rent                                                                                                                                                                                                 |       | 5,936             |       | 2,070            |       |
| Other non-current liabilities                                                                                                                                                                                 |       | 5,293             |       | 5,363            |       |
|                                                                                                                                                                                                          |       |              |       |             |       |
| Stockholders' Equity:                                                                                                                                                                                         |       |              |       |             |       |
| Preferred stock, no par value, 15,000,000  shares authorized, none issued                                                                                                                                     |       | —            |       | —           |       |
| Common stock, no par value, 150,000,000  shares authorized, 46,117,895 and 44,913,584 shares issued; 43,355,678 and  42,374,836 shares outstanding at September 30, 2005 and December 31, 2004,  respectively |       | 142,563           |       | 125,237          |       |
| Retained earnings                                                                                                                                                                                             |       | 148,927           |       | 127,501          |       |
| Deferred compensation                                                                                                                                                                                         |       | (368              | )          | (123             | )          |
| Accumulated other comprehensive income                                                                                                                                                                        |       | (639              | )          | 1,239            |       |
| Less treasury stock, at cost                                                                                                                                                                                  |       | (30,287           | )          | (26,265          | )          |
| Total stockholders' equity                                                                                                                                                                                    |       | 260,196           |       | 227,589          |       |
|                                                                                                                                                                                                          |       | $                 | 356,841    |             | $          | 321,780 |   |

 

The accompanying notes are an integral part of these consolidatedstatements.

 

4

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**DENDRITE INTERNATIONAL, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(IN THOUSANDS)**

**(UNAUDITED)**

 
| ** **                                                                         | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                         | ** ** | **2005**                            | ** ** | **2004** | ** ** |
| Operating activities:                                                              |       |                                |       |   |   |
| Net income                                                                         |       | $                                   | 21,426     |   | $ | 20,745 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                                |       |   |   |
| Depreciation and amortization                                                      |       | 18,026                              |       | 15,958 |   |
| Write-off of property and equipment                                                |       | 1,030                               |       | — |   |
| Amortization of deferred compensation, net  of forfeitures                         |       | 103                                 |       | 149 |   |
| Deferred income taxes                                                              |       | (2,277                              | )          | 599 |   |
| Other adjustments for non-cash items                                               |       | —                              |       | 901 |   |
| Changes in assets and liabilities, net of  effects from acquisitions:              |       |                                |       |   |   |
| (Increase) decrease in accounts receivable                                         |       | (1,825                              | )          | 7,424 |   |
| Decrease in prepaid expenses and other  current assets                             |       | 56                                  |       | 926 |   |
| (Increase) decrease in other assets                                                |       | (1,277                              | )          | 786 |   |
| Increase (decrease) in accounts payable and  accrued expenses                      |       | 1,599                               |       | (3,671 | ) |
| Increase in accrued facility and other  charges                                    |       | 6,618                               |       | — |   |
| Decrease in purchase accounting restructuring  accrual                             |       | (2,180                              | )          | (5,606 | ) |
| (Decrease) increase in income taxes payable                                        |       | (1,621                              | )          | 3,308 |   |
| Increase (decrease) in deferred revenue                                            |       | 221                                 |       | (5,505 | ) |
| (Decrease) increase in other non-current  liabilities                              |       | (70                                 | )          | 860 |   |
| Net cash provided by operating activities                                          |       | 39,829                              |       | 36,874 |   |
|                                                                               |       |                                |       |   |   |
| Investing activities:                                                              |       |                                |       |   |   |
| Proceeds from sale-leaseback of furniture  and equipment                           |       | —                              |       | 2,162 |   |
| Acquisitions, net of cash acquired                                                 |       | (21,439                             | )          | (7,312 | ) |
| Purchases of property and equipment                                                |       | (22,633                             | )          | (15,083 | ) |
| Additions to capitalized software  development costs                               |       | (3,845                              | )          | (4,087 | ) |
| Net cash used in investing activities                                              |       | (47,917                             | )          | (24,320 | ) |
|                                                                               |       |                                |       |   |   |
| Financing activities:                                                              |       |                                |       |   |   |
| Repayments of long-term debt                                                       |       | —                              |       | (1,773 | ) |
| Repayments of acquired loan                                                        |       | —                              |       | (624 | ) |
| Payments on capital lease obligations                                              |       | (1,241                              | )          | (829 | ) |
| Issuance of common stock                                                           |       | 10,938                              |       | 6,249 |   |
| Net cash provided by financing activities                                          |       | 9,697                               |       | 3,023 |   |
| Effect of foreign exchange rate changes on  cash                                   |       | (1,011                              | )          | 152 |   |
| Net increase in cash and cash equivalents                                          |       | 598                                 |       | 15,729 |   |
| Cash and cash equivalents, beginning of  year                                      |       | 64,020                              |       | 30,405 |   |
| Cash and cash equivalents, end of period                                           |       | $                                   | 64,618     |   | $ | 46,134 |   |

 

The accompanying notes are an integral part of these consolidatedstatements.

 

5

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**DENDRITE INTERNATIONAL, INC.**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**($ IN THOUSANDS, EXCEPT PER SHARE DATA)**

 

**1.  Basis ofPresentation**

 

Theconsolidated financial statements of Dendrite International, Inc. and itssubsidiaries (“Dendrite” or the “Company”) included in this Form 10-Q areunaudited and reflect all adjustments (consisting of normal recurringadjustments) which are, in the opinion of management, necessary for a fairpresentation of the financial position as of September 30, 2005, operatingresults for the three and nine months ended September 30, 2005 and 2004and cash flows for the nine months ended September 30, 2005 and 2004.  For further information, refer to theconsolidated financial statements and notes thereto included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2004.

 

Ourinterim operating results may not be indicative of operating results for thefull year.

 

***Reclassifications.*******Certain prior period balances have been reclassifiedto conform to current period presentation. The Company has also made immaterialadjustments to the prior year classification of current and non-current purchaseaccounting restructuring accruals and from accrued compensation and benefitsto other non-current liabilities.

 

**2. Supplemental Cash Flow Information**

 

As of September 30, 2005, the Company acquired approximately$300 of property and equipment which was included in other accrued expenses onthe accompanying consolidated balance sheet as of September 30, 2005 and is thereforeexcluded from the consolidated statement of cash flows for the nine monthsended September 30, 2005.

 

  Pursuantto the terms of its replacement option program, the Company accepted 223,469shares of its common stock from an executive, in lieu of cash for the exerciseof approximately 223,469 stock options. The shares delivered were valued atapproximately $4,022 on the date of exercise, which value was equal to thenumber of options exercised multiplied by the exercise price.

 

**3. Recent Accounting Pronouncements**

 

InDecember 2004, the Financial Accounting Standards Board (“FASB”) issued Statementof Financial Accounting Standards (“SFAS”) No. 123 (revised 2004) “Share-BasedPayment” (“SFAS 123(R)”) as a replacement to SFAS 123, “Accountingfor Stock-Based Compensation” (“SFAS 123”). This statement supersedes AccountingPrinciples Board (“APB”) 25, “Accounting for Stock Issued to Employees,” whichallowed companies to use the intrinsic method of valuing share-based paymenttransactions and amends SFAS No. 95, “Statement of Cash Flows.”SFAS 123(R) requires all share-based payments to employees, includinggrants of employee stock options, to be recognized in the financial statementsbased on the fair-value method as defined in SFAS 123. SFAS 123(R)provides two alternatives for adoption: (1) a “modified prospective”method in which compensation cost is recognized for all awards grantedsubsequent to the effective date of this statement as well as for the unvestedportion of awards outstanding as of the effective date; or (2) a “modifiedretrospective” method which follows the approach of the “modified prospective”method, but also permits entities to restate prior periods to recordcompensation cost calculated under SFAS 123 for the pro forma disclosure. TheCompany plans to adopt SFAS 123(R) using the modified prospective method.In addition, SFAS 123(R) also requires that tax benefits received inexcess of compensation cost be reclassified from operating cash flows to financingcash flows in the consolidated statement of cash flows. The adoption ofFAS 123(R)’s fair value method is expected to have a significant impact onthe Company’s consolidated results of operations, though it will have no impacton the Company’s overall assets, liabilities and stockholder’s equity. However,had the Company adopted SFAS 123(R) in prior periods, the impact of thestandard would have approximated the impact of SFAS 123 as described inthe disclosure of pro forma net income and net income per share in Note 4to our consolidated financial statements.

 

InApril 2005, the Securities and Exchange Commission issued Release No. 33-8568,Amendment to Rule 4-01(a) of Regulation S-X Regarding the ComplianceDate for Statement of Financial Accounting Standards No. 123 (Revised2004), “Share-Based Payment,” which allows companies to continue to follow SFAS123 throughout 2005 and implement SFAS 123(R) beginning January 1, 2006,which the Company expects to follow.

 

6

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**DENDRITE INTERNATIONAL,INC.**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**($ IN THOUSANDS, EXCEPT PERSHARE DATA)**

 

**4.  Stock BasedCompensation**

 

TheCompany has adopted the disclosure requirements of SFAS 123 as amended bySFAS 148, “Accounting for Stock-Based Compensation-Transition andDisclosure.” The Company applies APB 25 and related interpretations inaccounting for stock options granted under the Company’s stock option plans(the “Plans”). Accordingly, compensation cost has been computed for the Plansbased on the intrinsic value of the stock options at the date of grant, whichrepresents the difference between the exercise price and the fair value of theCompany’s stock. The exercise price of all stock options granted equaled thefair value of the Company’s stock at the date of option grant and accordingly,no compensation cost related to stock options has been recorded in theaccompanying consolidated statements of operations. Had compensation cost forthe Plans and the employee stock purchase plan been determined consistent with SFAS 123,the Company’s net income and net income per share would have been adjusted tothe following pro forma amounts:

 
| ** **                                                                                                                                        | ** ** | **For the Three Months** | ** ** | **For the Nine Months** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                        | ** ** | **Ended September 30,**  | ** ** | **Ended September 30,** | ** ** |
| ** **                                                                                                                                        | ** ** | **2005**                 | ** ** | **2004**                | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income as reported                                                                                                                            |       | $                        | 10,778     |                    | $          | 7,795 |   | $ | 21,426 |   | $ | 20,745 |   |
|                                                                                                                                              |       |                     |       |                    |       |   |   |   |   |
| Add: Deferred compensation amortization, net  of forfeitures recognized in accordance with APB 25, net of related tax  effects                    |       | 42                       |       | 21                      |       | 63 |   | 92 |   |
|                                                                                                                                              |       |                     |       |                    |       |   |   |   |   |
| Deduct: Total stock-based employee  compensation expense determined under the fair value based method for all  awards, net of related tax effects |       | (4,165                   | )          | (7,836                  | )          | (11,857 | ) | (15,484 | ) |
|                                                                                                                                              |       |                     |       |                    |       |   |   |   |   |
| Pro forma net income                                                                                                                              |       | $                        | 6,655      |                    | $          | (20 | ) | $ | 9,632 |   | $ | 5,353 |   |
|                                                                                                                                              |       |                     |       |                    |       |   |   |   |   |
| Basic income per share:                                                                                                                           |       |                     |       |                    |       |   |   |   |   |
| As reported                                                                                                                                       |       | $                        | 0.25       |                    | $          | 0.19 |   | $ | 0.50 |   | $ | 0.50 |   |
| Pro forma                                                                                                                                         |       | $                        | 0.15       |                    | $          | 0.00 |   | $ | 0.23 |   | $ | 0.13 |   |
| Diluted income per share:                                                                                                                         |       |                     |       |                    |       |   |   |   |   |
| As reported                                                                                                                                       |       | $                        | 0.24       |                    | $          | 0.18 |   | $ | 0.49 |   | $ | 0.48 |   |
| Pro forma                                                                                                                                         |       | $                        | 0.15       |                    | $          | 0.00 |   | $ | 0.22 |   | $ | 0.12 |   |

 

 

Thefair value for these options were estimated at the date of grant using theBlack-Scholes option pricing model with the following assumptions:

 
| ** **                                       | ** ** | **For the Three Months** | ** ** | **For the Nine Months** | ** ** |
|--------------------------------------------------|------------|--------------------------|------------|-------------------------|------------|
| ** **                                       | ** ** | **Ended September 30,**  | ** ** | **Ended September 30,** | ** ** |
| ** **                                       | ** ** | **2005**                 | ** ** | **2004**                | ** ** | **2005** | ** ** | **2004** | ** ** |
| Expected dividend yield                          |       | 0.0                      | %          | 0.0                     | %          | 0.0 | % | 0.0 | % |
| Weighted-average expected stock price volatility |       | 50.0                     | %          | 70.0                    | %          | 50.0 | % | 70.0 | % |
| Weighted-average risk-free interest rate         |       | 4.1                      | %          | 3.7                     | %          | 3.9 | % | 3.2 | % |
| Expected life of the option (years)              |       | 5.25                     |       | 5.25                    |       | 5.25 |   | 5.25 |   |

 

 

Thestock-based employee compensation expense determined under the fair value basedmethods for all awards, net of related tax effects, disclosed above is determinedbased upon the number and fair value of options granted and an estimate offorfeitures. The expense is recognized over the vesting period of the options.Under SFAS 123, compensation expense is not recognized for options thatare forfeited due to the employee’s failure to fulfill service requirements.Therefore, while the fair value per option is not recalculated, the number ofoptions vesting would change, thus requiring recalculation of the aggregatecompensation expense.

 

**5.  Net Income Per Share**

 

Thefollowing table presents the computation of basic and diluted net income pershare for the three and nine months ended September 30, 2005 and 2004:

 

7

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**DENDRITE INTERNATIONAL,INC.**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**($ IN THOUSANDS, EXCEPT PERSHARE DATA)**

 
| ** **                                 | ** ** | **For the Three Months Ended** | ** ** | **For the Nine Months Ended** | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|-------------------------------|------------|
| ** **                                 | ** ** | **September 30,**              | ** ** | **September 30,**             | ** ** |
| ** **                                 | ** ** | **2005**                       | ** ** | **2004**                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Basic net income per share computation:    |       |                           |       |                          |       |   |   |   |   |
| Net income                                 |       | $                              | 10,778     |                          | $          | 7,795 |   | $ | 21,426 |   | $ | 20,745 |   |
| Weighted-average common shares outstanding |       | 42,944                         |       | 41,620                        |       | 42,670 |   | 41,335 |   |
| Basic net income per share                 |       | $                              | 0.25       |                          | $          | 0.19 |   | $ | 0.50 |   | $ | 0.50 |   |
|                                       |       |                           |       |                          |       |   |   |   |   |
| Diluted net income per share computation:  |       |                           |       |                          |       |   |   |   |   |
| Net income                                 |       | $                              | 10,778     |                          | $          | 7,795 |   | $ | 21,426 |   | $ | 20,745 |   |
| Diluted common shares outstanding:         |       |                           |       |                          |       |   |   |   |   |
| Weighted-average common shares outstanding |       | 42,944                         |       | 41,620                        |       | 42,670 |   | 41,335 |   |
| Impact of dilutive stock options           |       | 1,387                          |       | 1,319                         |       | 1,233 |   | 1,607 |   |
| Diluted common shares outstanding          |       | 44,331                         |       | 42,939                        |       | 43,903 |   | 42,942 |   |
| Diluted net income per share               |       | $                              | 0.24       |                          | $          | 0.18 |   | $ | 0.49 |   | $ | 0.48 |   |

 

**6.  Comprehensive Income**

 

Thecomponents of comprehensive income for the three and nine months ended September 30,2005 and 2004 consisted of the following:

 
| ** **                               | ** ** | **For the Three Months** | ** ** | **For the Nine Months** | ** ** |
|------------------------------------------|------------|--------------------------|------------|-------------------------|------------|
| ** **                               | ** ** | **Ended September 30,**  | ** ** | **Ended September 30,** | ** ** |
| ** **                               | ** ** | **2005**                 | ** ** | **2004**                | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income                               |       | $                        | 10,778     |                    | $          | 7,795 |   | $ | 21,426 |   | $ | 20,745 |   |
| Other comprehensive (loss) income:       |       |                     |       |                    |       |   |   |   |   |
| Foreign currency translation adjustments |       | (916                     | )          | 236                     |       | (1,878 | ) | 434 |   |
| Comprehensive income                     |       | $                        | 9,862      |                    | $          | 8,031 |   | $ | 19,548 |   | $ | 21,179 |   |

 

**7. Acquisitions**

 

***Optas***

 

On September 12, 2005, the Company completed the acquisition of Optas,Inc. (“Optas”).  Based in Boston,Massachusetts, Optas provides privacy-safe relationship marketing solutions forpatients and physicians.  Optas’ resultsof operations have been included in the accompanying consolidated financialstatements since the date of acquisition.

 

Theaggregate purchase price for Optas was approximately $12,814, including $349 oflegal and professional fees. Approximately $313 of the purchase pricewas included in other accrued expenses in the consolidated balance sheet as ofSeptember 30, 2005 and $1,800 of the purchase price was held in escrow asof September 30, 2005.  Inaccordance with the purchase agreement, the $1,800 held in escrow, less amountsclaimed against escrow, if any, is payable as follows: approximately $600within five  business days afterSeptember 12, 2006; and approximately $1,200 within five business days afterMarch 12, 2007.  The Company is in the process of finalizingthe valuation of certain intangible assets, including the review of a third-partyvaluation.  Therefore, the allocation ofpurchase price is preliminary and subject to adjustment.  The assets acquired and liabilities assumedin connection with the Optas acquisition and pro forma results of operationsare not deemed material to the consolidated financial statements.

 

Thepreliminary allocation of purchase price, including the net assets acquired of approximately$422, to intangible assets and goodwill acquired in connection with the Optasacquisition is as follows:

 

8

----

 

**DENDRITE INTERNATIONAL,INC.**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**($ IN THOUSANDS, EXCEPT PERSHARE DATA)**

 
| ** **                                       | ** ** | **Weighted-Average** | ** ** | ** **              | ** ** |
|--------------------------------------------------|------------|----------------------|------------|-------------------------|------------|
| ** **                                       | ** ** | **Estimated Useful** | ** ** | **Acquired Intangible** | ** ** |
| ** **                                       | ** ** | **Life (Years)**     | ** ** | **Asset Value**         | ** ** |
| Intangible Assets Subject to Amortization:       |       |                 |       |                    |       |
| Customer relationship asset                      |       | 10                   |       | $                       | 2,590      |   |
| Acquired technology                              |       | 5                    |       | 1,390                   |       |
| Backlog                                          |       | 0.33                 |       | 100                     |       |
| Trademarks                                       |       | 2                    |       | 70                      |       |
| Total Intangible Assets Subject to  Amortization |       |                 |       | 4,150                   |       |
|                                             |       |                 |       |                    |       |
| Intangible Assets Not Subject to Amortization:   |       |                 |       |                    |       |
| Goodwill                                         |       | N/A                  |       | 8,242                   |       |
| Total Intangible Assets                          |       |                 |       | $                       | 12,392     |   |

 

Thegoodwill and intangible assets recorded for financial statement purposes are notdeductible for tax purposes.

 

***Buzzeo***

 

OnJanuary 4, 2005, the Company completed the strategic acquisition ofBuzzeoPDMA, Inc. (“Buzzeo”). Based inRichmond, Virginia, Buzzeo provides compliance, auditing, consulting andreconciliation outsourcing services to the pharmaceutical and life sciencesindustry. This acquisition further expands the Company’s sample and compliancemanagement solution offerings. In connection with the acquisition, the Companyrestructured the combined operations by eliminating certain former Buzzeopositions. The Company accrued $200 at January 4, 2005 for liabilities associatedwith the cost of completing the restructuring plan (see Note 8). Buzzeo’sresults of operations have been included in the accompanying consolidatedfinancial statements since the date of acquisition.

 

Theaggregate purchase price for Buzzeo was approximately $10,988, including $33 oflegal and professional fees. Approximately $590 of the purchase price wasincluded in other accrued expenses in the consolidated balance sheet as of September 30,2005 and $1,025 of the purchase price was held in escrow as of September 30,2005.  In accordance with the purchaseagreement, the $1,025 held in escrow, less amounts claimed against escrow, ifany, is payable on January 4, 2006. The Company is in the process offinalizing the valuation of certain intangible assets, including the review ofa third-party valuation. Therefore, the allocation of purchase price ispreliminary and subject to adjustment. The assets acquired and liabilitiesassumed in connection with the Buzzeo acquisition and pro forma results of operationsare not deemed material to the consolidated financial statements.

 

Thepreliminary allocation of purchase price, including the net assets acquired ofapproximately $3,461, to intangible assets and goodwill acquired in connectionwith the Buzzeo acquisition is as follows:

 
| ** **                                       | ** ** | **Weighted-Average** | ** ** | ** **              | ** ** |
|--------------------------------------------------|------------|----------------------|------------|-------------------------|------------|
| ** **                                       | ** ** | **Estimated Useful** | ** ** | **Acquired Intangible** | ** ** |
| ** **                                       | ** ** | **Life (Years)**     | ** ** | **Asset Value**         | ** ** |
| Intangible Assets Subject to Amortization:       |       |                 |       |                    |       |
| Customer relationship asset                      |       | 10                   |       | $                       | 4,390      |   |
| Trademark                                        |       | 7                    |       | 290                     |       |
| Other                                            |       | 0.25                 |       | 70                      |       |
| Total Intangible Assets Subject to  Amortization |       |                 |       | 4,750                   |       |
|                                             |       |                 |       |                    |       |
| Intangible Assets Not Subject to Amortization:   |       |                 |       |                    |       |
| Goodwill                                         |       | N/A                  |       | 2,777                   |       |
| Total Intangible Assets                          |       |                 |       | $                       | 7,527      |   |

 

Thegoodwill and intangible assets recorded for financial statement purposes aredeductible for tax purposes.

*** ***

**8.  Purchase AccountingRestructuring Accrual**

 

Inconnection with the June 2003 acquisition of Synavant Inc. (“Synavant”),the Company restructured the combined operations by exiting certain formerSynavant facilities and eliminating certain former Synavant positions. The 

 

9

----

 

**DENDRITE INTERNATIONAL,INC.**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**($ IN THOUSANDS, EXCEPT PERSHARE DATA)**

 

Companyanticipates that the remaining accrued restructuring balance related to thefacility exit costs will be paid over the life of the facility leases, endingin February 2012. The liability accrued for expenses to be incurred inexiting certain Synavant facilities and includes assumptions related tosublease income, which offsets future lease obligations. The underlyingsubleases are not in place for all facilities and the future placement ofsubleases, including the timing and terms and conditions of subleases, could bedifferent than the assumptions utilized.

 

Inconnection with the September 2002 acquisition of Software AssociatesInternational (“SAI”), the Company developed an exit plan to close the facilityin Mt. Arlington, New Jersey, and relocate the operations to the Company’sother facilities in New Jersey. The Company accrued, as part of the acquisitioncosts, the costs to terminate certain leases amounting to $3,252. The Companyclosed the facility during the first quarter of 2003.

 

Inconnection with the July 2004 and January 2005 acquisitions of Schwarzeck-VerlagGmbH (“Schwarzeck”) and Buzzeo, the Company restructured the combinedoperations by eliminating certain former positions. The Company accruedapproximately $300 and $200 to complete the Schwarzeck and Buzzeo restructuringplans, respectively.

 

Theactivity related to the purchase accounting restructuring accrual for the ninemonths ended September 30, 2005 is summarized in the table below:

 
| ** **                        | ** ** | ** **                   | ** ** | ** **         | ** ** | ** **   | ** ** | ** **      | ** ** | **Purchase  Accounting**   | ** ** |
|-----------------------------------|------------|------------------------------|------------|--------------------|------------|--------------|------------|-----------------|------------|----------------------------|------------|
| ** **                        | ** ** | **Purchase  Accounting**     | ** ** | ** **         | ** ** | ** **   | ** ** | **Currency**    | ** ** | **Restructuring  Accrual** | ** ** |
| ** **                        | ** ** | **Restructuring  Accrual**   | ** ** | ** **         | ** ** | **2005**     | ** ** | **Translation** | ** ** | **as of  September 30,**   | ** ** |
| ** **                        | ** ** | **as of  December 31, 2004** | ** ** | **2005  Accruals** | ** ** | **Payments** | ** ** | **Adjustments** | ** ** | **2005**                   | ** ** |
| Synavant                          |       |                         |       |               |       |         |       |            |       |                       |       |
| Termination payments to employees |       | $                            | 23         |               | $          | —       |       | $               | (23        | )                          | $          | — |   | $ | — |   |
| Facility exit costs               |       | 5,926                        |       | —             |       | (1,423       | )          | —          |       | 4,503                      |       |
| Total Synavant                    |       | 5,949                        |       | —             |       | (1,446       | )          | —          |       | 4,503                      |       |
| SAI                               |       |                         |       |               |       |         |       |            |       |                       |       |
| Lease termination costs           |       | 947                          |       | —             |       | (497         | )          | —          |       | 450                        |       |
| Schwarzeck                        |       |                         |       |               |       |         |       |            |       |                       |       |
| Termination payments to employees |       | 247                          |       | —             |       | (235         | )          | (12             | )          | —                     |       |
| Buzzeo                            |       |                         |       |               |       |         |       |            |       |                       |       |
| Termination payments to employees |       | —                       |       | 200                |       | (4           | )          | —          |       | 196                        |       |
| Total                             |       | $                            | 7,143      |               | $          | 200          |       | $               | (2,182     | )                          | $          | (12 | ) | $ | 5,149 |   |

 

**9.  Goodwill andIntangible Assets**

 

Thetotal gross carrying amount and accumulated amortization for goodwill andintangible assets are as follows:

 

10

----

 

 

**DENDRITE INTERNATIONAL,INC.**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**($ IN THOUSANDS, EXCEPT PERSHARE DATA)**

 
| ** **                                      | ** ** | **As of September 30, 2005** | ** ** | **As of December 31, 2004**   | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|-------------------------------|------------|
| ** **                                      | ** ** | **Gross**                    | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** | **Gross** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Intangible Assets Subject To Amortization:      |       |                         |       |                          |       |   |   |   |   |   |   |   |   |
| Purchased capitalized software                  |       | $                            | 2,441      |                          | $          | (1,843 | ) | $ | 598 |   | $ | 2,441 |   | $ | (1,385 | ) | $ | 1,056 |   |
| Capitalized software development costs          |       | 30,452                       |       | (20,113                       | )          | 10,339 |   | 26,607 |   | (17,437 | ) | 9,170 |   |
| Customer relationship assets                    |       | 16,471                       |       | (3,304                        | )          | 13,167 |   | 9,595 |   | (2,222 | ) | 7,373 |   |
| Backlog                                         |       | 2,500                        |       | (2,394                        | )          | 106 |   | 2,400 |   | (2,313 | ) | 87 |   |
| Non-compete covenants                           |       | 3,729                        |       | (3,392                        | )          | 337 |   | 3,768 |   | (2,678 | ) | 1,090 |   |
| Purchased database                              |       | 5,168                        |       | (1,811                        | )          | 3,357 |   | 5,221 |   | (979 | ) | 4,242 |   |
| Acquired technology                             |       | 1,390                        |       | (15                           | )          | 1,375 |   | — |   | — |   | — |   |
| Trademarks                                      |       | 505                          |       | (59                           | )          | 446 |   | 151 |   | (15 | ) | 136 |   |
| Other intangibles                               |       | 482                          |       | (317                          | )          | 165 |   | 413 |   | (197 | ) | 216 |   |
| Total                                           |       | 63,138                       |       | (33,248                       | )          | 29,890 |   | 50,596 |   | (27,226 | ) | 23,370 |   |
|                                            |       |                         |       |                          |       |   |   |   |   |   |   |   |   |
| Intangible Assets Not Subject to  Amortization: |       |                         |       |                          |       |   |   |   |   |   |   |   |   |
| Goodwill                                        |       | 91,409                       |       | —                        |       | 91,409 |   | 80,963 |   | — |   | 80,963 |   |
| Trademarks                                      |       | 6,732                        |       | —                        |       | 6,732 |   | 6,732 |   | — |   | 6,732 |   |
| Total                                           |       | 98,141                       |       | —                        |       | 98,141 |   | 87,695 |   | — |   | 87,695 |   |
|                                            |       |                         |       |                          |       |   |   |   |   |   |   |   |   |
| Total Goodwill and Intangible Assets            |       | $                            | 161,279    |                          | $          | (33,248 | ) | $ | 128,031 |   | $ | 138,291 |   | $ | (27,226 | ) | $ | 111,065 |   |

 

Thechanges in the carrying amount of intangible assets not subject to amortizationfor the nine months ended September 30, 2005 is as follows:

 
| ** ** | ** ** | ** **            | ** ** | **Acquisitions /** | ** ** | ** **      | ** ** | ** **             | ** ** |
|------------|------------|-----------------------|------------|--------------------|------------|-----------------|------------|------------------------|------------|
| ** ** | ** ** | ** **            | ** ** | **Purchase**       | ** ** | **Currency**    | ** ** | ** **             | ** ** |
| ** ** | ** ** | **Balance as of**     | ** ** | **Accounting**     | ** ** | **Translation** | ** ** | **Balance as of**      | ** ** |
| ** ** | ** ** | **December 31, 2004** | ** ** | **Adjustments**    | ** ** | **Adjustments** | ** ** | **September 30, 2005** | ** ** |
| Goodwill   |       | $                     | 80,963     |               | $          | 10,694          |       | $                      | (248       | ) | $ | 91,409 |   |
| Trademarks |       | 6,732                 |       | —             |       | —          |       | 6,732                  |       |
| Total      |       | $                     | 87,695     |               | $          | 10,694          |       | $                      | (248       | ) | $ | 98,141 |   |

 

TheCompany conducts its annual impairment testing of goodwill as of October 1each year. During the nine months ended September 30, 2005, there were nochanges in events or circumstances that would indicate impairment.

 

Thefollowing table reconciles net intangible assets subject to amortization forthe period from December 31, 2004 to September 30, 2005:

 
| ** **                             | ** ** | **Net Intangibles**   | ** ** | **2005 Year-to-Date Activity** | ** ** | **Net Intangibles** | ** ** |
|----------------------------------------|------------|-----------------------|------------|--------------------------------|------------|---------------------|------------|
| ** **                             | ** ** | **as of**             | ** ** | ** **                     | ** ** | ** **          | ** ** | **Translation** | ** ** | **as of** | ** ** |
| ** **                             | ** ** | **December 31, 2004** | ** ** | **Additions**                  | ** ** | **Amortization**    | ** ** | **and Other** | ** ** | **September 30, 2005** | ** ** |
| Purchased capitalized software         |       | $                     | 1,056      |                           | $          | —              |       | $ | (458 | ) | $ | — |   | $ | 598 |   |
| Capitalized software development costs |       | 9,170                 |       | 3,845                          |       | (2,676              | )          | — |   | 10,339 |   |
| Customer relationship assets           |       | 7,373                 |       | 6,980                          |       | (1,082              | )          | (104 | ) | 13,167 |   |
| Backlog                                |       | 87                    |       | 100                            |       | (81                 | )          | — |   | 106 |   |
| Non-compete covenants                  |       | 1,090                 |       | —                         |       | (714                | )          | (39 | ) | 337 |   |
| Purchased database                     |       | 4,242                 |       | —                         |       | (832                | )          | (53 | ) | 3,357 |   |
| Acquired technology                    |       | —                |       | 1,390                          |       | (15                 | )          | — |   | 1,375 |   |
| Trademarks                             |       | 136                   |       | 360                            |       | (44                 | )          | (6 | ) | 446 |   |
| Other intangibles                      |       | 216                   |       | 70                             |       | (120                | )          | (1 | ) | 165 |   |
| Total                                  |       | $                     | 23,370     |                           | $          | 12,745              |       | $ | (6,022 | ) | $ | (203 | ) | $ | 29,890 |   |

 

Amortizationexpense related to intangible assets, including internally developed capitalizedsoftware costs, for the three month periods ended September 30, 2005 and2004 was $1,877 and $1,937, respectively.Amortization expense related to intangible assets, including internallydeveloped capitalized software costs, for the nine month periods ended September 30,2005 and 2004 was $6,022 and $5,739, respectively. Aggregate annualamortization expense of intangible assets (exclusive of future additions) isestimated to be: 

 

11

----

 

**DENDRITE INTERNATIONAL,INC.**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**($ IN THOUSANDS, EXCEPT PERSHARE DATA)**

 
| **Year Ending December 31,**                                            | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|
| 2005                                                                    |       | $          | 8,161      |   |
| 2006                                                                    |       | 8,303      |       |
| 2007                                                                    |       | 6,085      |       |
| 2008                                                                    |       | 3,440      |       |
| 2009                                                                    |       | 2,100      |       |
| 2010                                                                    |       | 1,810      |       |
| Thereafter                                                              |       | 6,013      |       |
|                                                                    |       | 35,912     |       |
| Less: 2005 year-to-date amortization expense                            |       | (6,022     | )          |
| Net intangible assets subject to amortization as of September 30,  2005 |       | $          | 29,890     |   |

 

**10. Accrued Facility and Other Charges**

 

During the period ended March 31, 2005, the Company initiated andcompleted a plan to exit a facility in New Jersey for which it has an operatinglease expiring in September 2011. The accrued facility charge relates to vacating this New Jerseyfacility and for additional facilities vacated and accrued for in previousperiods, for which the Company has operating leases expiring through February 2012,due to changes in current market conditions. The Company accrued for thepresent value of these costs, net of estimated future sublease income.  The Company also accrued for severance chargesrelated to the elimination ofcertain senior and mid-level management positions. These charges are includedwithin Accrued Facility and Other Charges on the consolidated balancesheet as of September 30, 2005, and within Facility and Other Charges onthe consolidated statement of operations during the nine months ended September30, 2005.

 

Theactivity related to Accrued Facility and Other Charges for the nine monthsended September 30, 2005 is summarized in the table below:
| ** **          | ** ** | **Accrued Facility and** | ** ** | **2005 Facility** | ** ** | ** **   | ** ** | **Currency**    | ** ** | **Accrued Facility and** | ** ** |
|---------------------|------------|--------------------------|------------|-------------------|------------|--------------|------------|-----------------|------------|--------------------------|------------|
| ** **          | ** ** | **Other Charges as of**  | ** ** | **and Other**     | ** ** | **2005**     | ** ** | **Translation** | ** ** | **Other Charges as of**  | ** ** |
| ** **          | ** ** | **December 31, 2004**    | ** ** | **Charges**       | ** ** | **Payments** | ** ** | **Adjustments** | ** ** | **September 30, 2005**   | ** ** |
| Facility exit costs |       | $                        | —     |              | $          | 6,619        |       | $               | (759       | )                        | $          | — |   | $ | 5,860 |   |
| Severance           |       | —                   |       | 1,723             |       | (931         | )          | (52             | )          | 740                      |       |
|                |       | $                        | —     |              | $          | 8,342        |       | $               | (1,690     | )                        | $          | (52 | ) | $ | 6,600 |   |

 

In connection with the plan initiated and completed during the threemonths ended March 31, 2005, the Company also wrote-off $1,030 ofleasehold improvements included within Facility and Other Charges in theconsolidated statement of operations for the nine months ended September 30,2005.

 

**11. Line-of-Credit**

 

The June 16, 2003 line-of-credit agreement withJPMorgan Chase, amended September 24, 2004, expired on July 1,2005.  On July 25, 2005, theCompany entered into a replacement line-of-credit agreement (the “Agreement”),in the amount of $30,000 with JPMorgan Chase Bank that expires on June 30,2008. The Agreement is available to finance working capital needs and possiblefuture acquisitions. The Agreement contains customary affirmative and negativecovenants and also contains certain financial covenants, including thoserelated to (a) a maximum leverage ratio at the end of any fiscal quarter,(b) a minimum interest coverage ratio at the end of any fiscal quarter and(c) a minimum fixed charge coverage ratio at the end of any fiscalquarter. The Agreement also restricts the Company’s ability to create or assumeliens, dispose of assets, consolidate or merge, extend credit, incur otherindebtedness or pay cash dividends. As of September 30, 2005, the Company’s consolidated net worth was$260,196, the Company was in compliance with all covenants and did not have anyamounts outstanding under the line-of-credit. 

 

Asof September 30, 2005, the Company had outstanding letters-of-credit ofapproximately $5,721. 

 

12

----

 

**DENDRITE INTERNATIONAL,INC.**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**($ IN THOUSANDS, EXCEPT PERSHARE DATA)**

 

**12. Income Taxes**

 

TheCompany’s effective income tax expense rate was 38.5% for the three and ninemonths ended September 30, 2005 and 2004.  

** **

**13. Common Stock**

 

Thefollowing table rolls forward the balance of common stock for the nine monthsended September 30, 2005.

 
| ** **            | ** **  | ** **      | ** ** | ** **          | ** ** | ** ** | ** ** | ** **             | ** ** |
|-----------------------|-------------|-----------------|------------|---------------------|------------|------------|------------|------------------------|------------|
| ** **            | ** **  | **Issuance of** | ** ** | **Tax Benefit**     | ** ** | ** ** | ** ** | ** **             | ** ** |
| **Balance as of**     | ** **  | **Common**      | ** ** | **of Stock Option** | ** ** | ** ** | ** ** | **Balance as of**      | ** ** |
| **December 31, 2004** | ** **  | **Stock (1)**   | ** ** | **Exercises**       | ** ** | **Other**  | ** ** | **September 30, 2005** | ** ** |
| **$**                 | **125,237** | ** **      | **14,960** | ** **          | **2,018**  | ** ** | **348**    | ** **             | **$**      | **142,563** | ** ** |
|                       |             |                 |            |                     |            |            |            |                        |            |  |  |

 

----

(1)  Includes issuance of common stock through theemployee stock purchase plan as well as stock option exercises.

** **

**14.  Enterprise-WideData**

 

Information about Major Customers:

 

Forthe three month period ended September 30, 2005, the Company derived approximately27% and 10% of its revenues from its two largest customers. For the three monthperiod ended September 30, 2004, the Company derived approximately 27% ofits revenues from its largest customer. For the nine month periods ended September 30, 2005 and 2004, theCompany derived approximately 26% and 27% of its revenues from its largestcustomer, respectively. As of September 30, 2005, approximately 13% and 11%of the Company’s accounts receivable balance was due from its two largest customers,respectively. As of December 31, 2004, approximately 18% of  the Company’s accounts receivable balance wasdue from its largest customer. Other than what has been presented above, noindividual customer represented 10% or more of our total consolidated revenues oraccounts receivable for or as of the periods presented. 

 

Information about Products and Services:

 

Due to the growth in the Company’s strategic product and serviceofferings, largely built through recent acquisitions, the Company has expandedits revenue categories into sales solutions, marketing solutions and shipping.These categories are reflective of how service offerings are marketed to andviewed by customers. They are not reflective of the way the business ismanaged. Company operating costs are not broken out for these categories on aglobal basis, as they are not currently viewed as necessary to the managementof the business globally. Based upon all of these factors, while thesecategories are useful in understanding the Company’s operating results, theCompany has only one reportable segment for disclosure purposes under SFAS 131,“Disclosure About Segments of an Enterprise and Related Information.” Thefollowing is a summary of our revenue categories:

 

*Sales solutions*revenue includes product and sales support services which are used by, orprovided to, the sales forces of our customers.

 

*Marketing solutions*revenue includes our product and service offerings that are not directly gearedtoward the client sales force and primarily consists of offerings acquired inour business combinations over the past few years. The primary components ofmarketing solutions revenue include interactive marketing, data, consulting andclinical.

 

*Shipping* revenuesare disclosed separately as they are pass-through costs that bear little to nomargin, and are required to be included in revenues and costs based uponEmerging Issues Task Force (“EITF”) 00-10, “Accounting for Shipping andHandling Fees and Costs.” These billable shipping transactions are primarilyrelated to our interactive marketing activities.

 

The following table presents revenues by category for the three and ninemonth periods ended September 30, 2005 and 2004.

 

13

----

 

**DENDRITE INTERNATIONAL,INC.**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**($ IN THOUSANDS, EXCEPT PERSHARE DATA)**

 
| ** **                 | ** ** | **For the Three Months Ended** | ** **    | **For the Nine Months Ended** | ** ** |
|----------------------------|------------|--------------------------------|---------------|-------------------------------|------------|
| ** **                 | ** ** | **September 30,**              | ** **    | **September 30,**             | ** ** |
| ** **                 | ** ** | **2005**                       | ** **    | **2004**                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Services & Technology: |       |                           |          |                          |       |   |   |   |   |
| Sales solutions            |       | $                              | 86,314        |                          | $          | 71,629 |   | $ | 239,527 |   | $ | 214,673 |   |
| Marketing solutions        |       | 24,052                         |          | 23,834                        |       | 75,757 |   | 67,847 |   |
| Shipping                   |       | 3,994                          |          | 3,965                         |       | 13,589 |   | 11,879 |   |
|                       |       | $                              |  114,360 |                          | $          | 99,428 |   | $ | 328,873 |   | $ | 294,399 |   |

 

Informationabout Geographic Areas:

 

TheCompany is organized by geographic location and has one reportable segment. Alltransfers between geographic areas have been eliminated from consolidatedrevenues. The following table presents revenues by geographic area for thethree and nine months ended September 30, 2005 and 2004.

 
| ** **    | ** ** | **For the Three Months Ended** | ** ** | **For the Nine Months Ended** | ** ** |
|---------------|------------|--------------------------------|------------|-------------------------------|------------|
| ** **    | ** ** | **September 30,**              | ** ** | **September 30,**             | ** ** |
| ** **    | ** ** | **2005**                       | ** ** | **2004**                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| United States |       | $                              | 76,169     |                          | $          | 60,992 |   | $ | 209,296 |   | $ | 185,197 |   |
| Europe        |       | 24,171                         |       | 25,168                        |       | 79,510 |   | 69,991 |   |
| All other     |       | 14,020                         |       | 13,268                        |       | 40,067 |   | 39,211 |   |
|          |       | $                              | 114,360    |                          | $          | 99,428 |   | $ | 328,873 |   | $ | 294,399 |   |

 

Thetable above allocates license revenues on a legal basis. On a legal basis,license revenues have been allocated using the geographic location where theintellectual property is owned. 

 

The following table presents long-lived assets by geographic area: 

 
| ** **    | ** ** | **As of**         | ** ** | **As of**    | ** ** |
|---------------|------------|-------------------|------------|--------------|------------|
| ** **    | ** ** | **September 30,** | ** ** | **December** | ** ** |
| ** **    | ** ** | **2005**          | ** ** | **31, 2004** | ** ** |
| United States |       | $                 | 170,742    |         | $          | 144,233 |   |
| Europe        |       | 10,204            |       | 9,614        |       |
| All other     |       | 11,350            |       | 10,423       |       |
|          |       | $                 | 192,296    |         | $          | 164,270 |   |

 

14

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**ITEM 2.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

**($ IN THOUSANDS)**

 

ThisForm 10-Q contains certain forward-looking statements within the meaningof Section 27A of the Securities Act of 1933 and Section 21-E of theSecurities Exchange Act of 1934, which are intended to be covered by the safeharbors created by such acts. For this purpose, any statements that are notstatements of historical fact may be deemed to be forward-looking statements,including the statements under “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” regarding our strategy, futureoperations, future expectations and future estimates, future financial positionor results and future plans and objectives of management. Those statements inthis Form 10-Q containing the words “believes,” “anticipates,” “plans,” “expects”and similar expressions constitute forward-looking statements, although not allforward-looking statements contain such identifying words. Theseforward-looking statements are based on our current expectations, assumptions,estimates and projections about our Company and the pharmaceutical and consumerpackaged goods industries. All such forward-looking statements involvesignificant risks and uncertainties, including those risks identified in this Form 10-Qunder “Factors That May Affect Future Results,” many of which are beyondour control. Although we believe that the assumptions underlying ourforward-looking statements are reasonable, any of the assumptions could beinaccurate. Actual results may differ materially from those indicated by theforward-looking statements included in this Form 10-Q, as more fullydescribed under “Factors That May Affect Future Results.” In light of thesignificant uncertainties inherent in the forward-looking statements includedin this Form 10-Q, you should not consider the inclusion of suchinformation as a representation by us or anyone else that we will achieve suchresults. Moreover, we assume no obligation to update these forward-lookingstatements to reflect actual results or changes in assumptions, expectations orprojections. In addition, our financial and performance outlook concerningfuture revenues, margins, earnings, earnings per share and other operating orperformance results does not include the impact of any future acquisitions,future acquisition-related expenses or accruals, or any future restructuring orother charges that may occur from time-to-time due to management decisions andchanging business circumstances and conditions.

 

**EXECUTIVE OVERVIEW**

 

Weprovide a broad array of solutions worldwide that enable pharmaceutical andother life science companies to strategically optimize their sales andmarketing channels and clinical resources. Our plan is to continue to diversifyand expand our solutions portfolio, customer base and geographic reach byleveraging our extensive knowledge of the pharmaceutical and life sciencesindustries and capitalizing upon our deep relationships in these industries.Our strategy continues to rely on both internal growth and acquisitions to meetto our growth objectives.

 

Wehave expanded both our portfolio of solutions and customer base and believethat this combination presents significant opportunity for future growth.  In January 2005 and September 2005, webroadened and enhanced our service portfolio with our acquisitions of BuzzeoPDMA, Inc.(“Buzzeo”) and Optas, Inc. (“Optas”). The Buzzeo acquisition expands our sample and compliance managementsolution offerings. The Optas acquisition enhances our portfolio of marketingsolutions services by expanding our privacy-safe relationship marketingsolutions for patients and physicians.  Webelieve our recent acquisitions complement our existing business operations byenhancing our solutions portfolio, increasing our access to new customers and allowingdeeper penetration into our current markets. We have also committed to investing in key initiatives to help drivefuture growth. Our future growth is dependent on our ability to furtherpenetrate the markets in which we operate and increase the adoption rate of ourexpanded portfolio of solutions.

 

Weevaluate our performance based upon a number of operating metrics. Chief amongthese metrics are revenues, operating margins, diluted net income per share,operating cash flow and days sales outstanding. Our goal in 2005 is to executeour strategy to yield growth in revenues, operating margins and diluted netincome per share. As part of our strategy to improve operating margins, webegan shifting technical positions offshore in early 2004.  We currently partner with a third party tooperate our offshore development centers. As of September 30, 2005 we have 350 positions located inIndia.  We expect to continue movingadditional technical and non-technical functions into low cost countries suchas India as we further seek to expand our operating margins. We hope to maintainour level of days sales outstanding and generate strong positive operating cashflow as we continue to reduce the remaining liabilities associated with ouracquisitions. 

 

Asa result of international growth through our recent acquisitions, certain linesof our business are now subject to a higher level of seasonal fluctuations thanwe have experienced in the past. Specifically, our European business and interactive marketing businessin the United States have historically experienced a seasonal slowdown duringthe summer months.

 

Dueto the growth in our strategic product and service offerings, largely builtthrough our recent acquisitions, we expanded our revenue categories into sales solutions,marketing solutions and shipping. These categories reflect how our serviceofferings are marketed to and viewed by our customers. They are not reflectiveof the way we manage our global business. Our operating costs are not brokenout for these categories on a global basis, as they are not viewed as necessaryin the management of our global business. Based upon all of these factors,while these categories are useful in understanding our operating results, we haveonly one reporting segment for disclosure purposes under Statement of FinancialAccounting Standards (“SFAS”) No. 131, “Disclosure About Segments of anEnterprise and Related Information.” The following is a summary of our revenuecategories:

 

*Sales solutions*revenue includes product and sales support services which are used by, orprovided to, the sales force of our customers.

 

*Marketing solutions*revenue includes our product and service offerings that are not directly gearedtoward the client sales force and primarily consists of offerings acquired inour business combinations over the past few years. The primary components ofmarketing solutions revenue include interactive marketing, data, consulting andclinical services.

 

*Shipping*revenues are disclosed separately as they are pass-through costs that bearlittle to no margin, and are required to be included in revenues and costsbased upon Emerging Issues Task Force (“EITF”) 00-10, “Accounting for Shippingand Handling Fees and Costs.” These billable shipping transactions areprimarily related to our interactive marketing activities.

 

15

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**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

**($ IN THOUSANDS)**

 

**CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES**

 

Therehave been no material changes to our critical accounting policies, judgmentsand estimates from the information provided in Item 7, Management’s Discussionand Analysis of Financial Condition and Results of Operations included in ourAnnual Report on Form 10-K for the year ended December 31, 2004.

 

**MERGERS AND ACQUISITIONS**

 

Weregularly evaluate opportunities to acquire products or businesses thatrepresent strategic enhancements to our operations. Such acquisitionopportunities, if they arise, may involve the use of cash, equity or debtinstruments.

 

**Optas**

** **

On September 12, 2005, we completed the acquisition of Optas.  Based in Boston, Massachusetts, Optasprovides privacy-safe relationship marketing solutions for patients andphysicians.  Optas’ results ofoperations have been included in the accompanying consolidated financialstatements since the date of acquisition.

 

Theaggregate purchase price for Optas was approximately $12,814 including $349 oflegal and professional fees. Approximately $313 of the purchase price wasincluded in other accrued expenses in the consolidated balance sheet as ofSeptember 30, 2005 and $1,800 of the purchase price was held in escrow asof September 30, 2005.  Inaccordance with the purchase agreement, the $1,800 held in escrow, less amountsclaimed against escrow, if any, is payable as follows: approximately $600within five business days after September 12, 2006; and approximately $1,200within five business days after March 12, 2007. We are in the process offinalizing the valuation of certain intangible assets, including the review ofa third-party valuation.  Therefore, theallocation of purchase price is preliminary and subject to adjustment.  The assets acquired and liabilities assumedin connection with the Optas acquisition and pro forma results of operationsare not deemed material to the consolidated financial statements.

 

Thepreliminary allocation of purchase price, including the net assets acquired ofapproximately $422, to intangible assets and goodwill acquired in connectionwith the Optas acquisition are as follows: customer relationship asset of $2,590,amortizable over 10 years; acquired technology of $1,390, amortizable over 5years; backlog of  $100, amortizable over4 months; trademark of $70, amortizable over 2 years; and goodwill of $8,242.

 

**Buzzeo**

 

OnJanuary 4, 2005, we completed the strategic acquisition of Buzzeo. Basedin Richmond, Virginia, Buzzeo provides compliance, auditing, consulting andreconciliation outsourcing services to the pharmaceutical and life sciencesindustry. This acquisition further expands our sample and compliance managementsolution offerings. In connection with the acquisition, we restructured thecombined operations by eliminating certain former Buzzeo positions. We accrued$200 at January 4, 2005 for liabilities associated with the cost ofcompleting the restructuring plan. Buzzeo’s results of operations have beenincluded in the accompanying consolidated financial statements since the dateof acquisition.

 

Theaggregate purchase price for Buzzeo was approximately $10,988, including $33 oflegal and professional fees.   Approximately$590 of the purchase price was included in other accrued expenses in theconsolidated balance sheet as of September 30, 2005 and $1,025 of the purchaseprice was held in escrow as of  September 30,2005. In accordance with the purchase agreement, the $1,025 held in escrow,less amounts claimed against escrow, if any, is payable on January 4,2006. We are in the process of finalizing the valuation of certain intangibleassets, including the review of a third-party valuation. Therefore, theallocation of purchase price is preliminary and subject to adjustment. Theassets acquired and liabilities assumed in connection with the Buzzeoacquisition and pro forma results of operations are not deemed material to theconsolidated financial statements.

 

Thepreliminary allocation of purchase price, including the net assets acquired ofapproximately $3,461, to intangible assets and goodwill acquired in connectionwith the Buzzeo acquisition are as follows: customer relationship asset of$4,390, amortizable over 10 years; trademark of $290, amortizable over 7 years;other intangibles of $70, fully amortized during the three months ended March 31,2005; and goodwill of $2,777.

 

****

 

16

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** **

**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

**($ IN THOUSANDS)   **

 

**Schwarzeck**

 

OnJuly 20, 2004, we completed the strategic acquisition of the capital stockof Schwarzeck-Verlag GmbH (“Schwarzeck”). Schwarzeck was a provider ofphysician databases, direct marketing services and sample fulfillment servicesto pharmaceutical companies in Germany. This acquisition accelerated our expansionin Europe and increased our interactive marketing solutions and services to theGerman pharmaceutical industry. In connection with the acquisition, werestructured the combined operations by eliminating certain former Schwarzeckpositions. We accrued approximately $300 at July 20, 2004 for liabilitiesassociated with the cost of completing the restructuring plan. Schwarzeck’sresults of operations have been included in the accompanying consolidatedfinancial statements since the date of acquisition. The valuation of certainintangible assets was finalized during the third quarter of 2005. The assetsacquired and liabilities assumed in connection with the Schwarzeck acquisitionand pro forma results of operations are not deemed material to the consolidatedfinancial statements.

 

**MDM**

 

OnApril 6, 2004, we completed the strategic acquisition of the capital stockof the Medical Data Management group of companies (“MDM”). Primarily based inWarsaw, Poland, MDM was a provider of physician databases, market research andsales force support services to pharmaceutical companies in Poland, Hungary,Russia and Ukraine. MDM’s results of operations have been included in theaccompanying consolidated financial statements since the date of acquisition.

 

Theaggregate purchase price for MDM was approximately $9,290 and consisted ofapproximately $5,700 in cash payments, approximately $3,320 in restricted stockand approximately $270 of legal and professional fees. The valuation of certainintangible assets was finalized during the fourth quarter of 2004. The assetsacquired and liabilities assumed in connection with the MDM acquisition and proforma results of operations are not deemed material to the consolidatedfinancial statements.

 

**UtoBrain**

 

OnJanuary 5, 2004, we completed the strategic acquisition of the capitalstock of Uto Brain Co. Ltd. (“Uto Brain”). Based in Osaka, Japan, Uto Brainprovided more than thirty pharmaceutical companies with data, analytics,publishing and advisory services. The combining of resources of Uto Brain withour existing resources creates a comprehensive information, software andservices company dedicated to the Japanese pharmaceutical industry and furtherenhances our ability to provide solutions to enhance the sales, marketing andclinical functions of pharmaceutical companies in the Japanese market. UtoBrain’s results of operations have been included in the accompanyingconsolidated financial statements since the date of acquisition.

 

Theaggregate purchase price for Uto Brain was approximately $4,900 (498,270 Yen),including approximately $100 of legal and professional fees. As of September 30,2005, the purchase price was paid. In addition, we assumed approximately $3,800in bank debt and an acquired loan, all of which was repaid during the yearended December 31, 2004. The assets acquired and liabilities assumed inconnection with the Uto Brain acquisition and pro forma results of operationsare not deemed material to the consolidated financial statements.

 

**RESULTS OF OPERATIONS**

 

**THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004**

 

**REVENUES**

 
| ** **                 | ** ** | **THREEMONTHS ENDED** | ** ** | ** **          | ** ** | **%**            | ** ** | **2005 %**     | ** ** | **2004 %**   | ** ** |
|----------------------------|------------|-----------------------|------------|---------------------|------------|------------------|------------|----------------|------------|--------------|------------|
| ** **                 | ** ** | **SEPTEMBER 30,**     | ** ** | **$ Increase** | ** ** | **Increase /**   | ** ** | **of Total**   | ** ** | **of Total** | ** ** |
| ** **                 | ** ** | **2005**              | ** ** | **2004**            | ** ** | **/ (Decrease)** | ** ** | **(Decrease)** | ** ** | **Revenues** | ** ** | **Revenues** | ** ** |
| Services & Technology: |       |                  |       |                |       |             |       |           |       |         |       |   |   |
| Sales solutions            |       | $                     | 86,314     |                | $          | 71,629           |       | $              | 14,685     |         | 21         | % | 75 | % | 72 | % |
| Marketing solutions        |       | 24,052                |       | 23,834              |       | 218              |       | 1              | %          | 21           | %          | 24 | % |
| Shipping                   |       | 3,994                 |       | 3,965               |       | 29               |       | 1              | %          | 3            | %          | 4 | % |
| Total Revenues             |       | $                     | 114,360    |                | $          | 99,428           |       | $              | 14,932     |         | 15         | % | 100 | % | 100 | % |

 

Totalrevenues of $114,360 increased by 15% for the three months ended September 30,2005 compared with the three months ended September 30, 2004.   Our international revenues were $38,859, orapproximately 34% of total revenues 

 

17

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**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

**($ IN THOUSANDS)**

 

inthe quarter, and decreased by 4% from 2004 due to decease in license revenue.  License fees are, by nature, non-recurringitems and fluctuate from period to period. Total revenues in the United States increased by 28% from the threemonths ended September 30, 2004, and were $75,501, or approximately 66% oftotal revenues.  The increase in theUnited States was primarily due to help desk, asset management and implementationservices associated with new system roll-outs by our customers, an increase inour interactive marketing business and the addition of revenues from our acquisitions.

 

Ourcurrent business is subject to a higher level of seasonal fluctuation than wehave experienced in the past. Specifically, our European business and our interactive marketingbusiness in the United States have historically experienced a seasonal slowdownduring the summer months.

 

***Sales Solutions***

 

Salessolutions accounted for approximately 75% of total revenues during the threemonths ended September 30, 2005, and increased by 21% compared with the threemonths ended September 30, 2004. Sales solutions services in the United States increased by 35%, due toincreases in help desk, asset management, and implementation services, which wereprimarily driven by a non-recurring project as well as field inventory andreconciliation services from our first quarter 2005 acquisition of Buzzeo.  Additionally, there was a significant decreasein international license revenue. During the third quarter 2004, there was asale of third-party licenses to an international customer, which did not reoccurin 2005.  International sales solutionsservices increased by 2% versus the three months ended September 30, 2004.

 

***Marketing Solutions***

 

Marketingsolutions accounted for approximately 21% of total revenues during the threemonths ended September 30, 2005, and were relatively flat as compared withthe three months ended September 30, 2004. In the United States, marketing solution revenues were relatively flatas compared with the three months ended September 30, 2004, but included growthin our interactive marketing services and consulting services from ouracquisition of Buzzeo. These increases were offset by decreases in our clinicaland data services.  Our internationalmarketing solutions revenues were relatively flat as compared with the threemonths ended September 30, 2004, but included growth in our interactivemarketing services which was offset by a decrease in our contract sales anddata services.

 

***Shipping***

 

Shippingrevenues accounted for approximately 3% of total revenues during the threemonths ended September 30, 2005, and were relatively flat as compared withthe three months ended September 30, 2004. Shipping revenues contribute little to no margin and relate to ourinteractive marketing business.

 

**OPERATING COSTS &EXPENSES**

 
| ** **                                 | ** ** | **THREEMONTHS ENDED** | ** ** | ** **           | ** ** | **%**            | ** ** | **2005 %**     | ** ** | **2004 %**   | ** ** |
|--------------------------------------------|------------|-----------------------|------------|----------------------|------------|------------------|------------|----------------|------------|--------------|------------|
| ** **                                 | ** ** | **SEPTEMBER 30,**     | ** ** | **/$ Increase** | ** ** | **Increase /**   | ** ** | **of Total**   | ** ** | **of Total** | ** ** |
| ** **                                 | ** ** | **2005**              | ** ** | **2004**             | ** ** | **/ (Decrease)** | ** ** | **(Decrease)** | ** ** | **Revenues** | ** ** | **Revenues** | ** ** |
| Operating Costs & Expenses:            |       |                  |       |                 |       |             |       |           |       |         |       |   |   |
| Operating costs (including shipping)       |       | $                     | 61,252     |                 | $          | 51,578           |       | $              | 9,674      |         | 19         | % | 54 | % | 52 | % |
| Selling, general and administrative        |       | 33,395                |       | 32,832               |       | 563              |       | 2              | %          | 29           | %          | 33 | % |
| Research and development                   |       | 1,343                 |       | 1,673                |       | (330             | )          | -20            | %          | 1            | %          | 2 | % |
| Amortization of acquired intangible assets |       | 960                   |       | 1,214                |       | (254             | )          | -21            | %          | 1            | %          | 1 | % |
| Other operating (income)                   |       | —                |       | (368                 | )          | 368              |       | -100           | %          | 0            | %          | 0 | % |
| Total operating costs & expenses       |       | $                     | 96,950     |                 | $          | 86,929           |       | $              | 10,021     |         | 12         | % | 85 | % | 87 | % |

 

***OPERATING COSTS (including shipping).***Operating costs increased19% for the three months ended September 30, 2005 compared with the threemonths ended September 30, 2004.  Thisincrease was due to higher costs from our current year acquisitions, as well asour overall revenue growth and increased costs associated with our interactivemarketing business in the United States. As a percentage of revenues, operating costs during the three monthsended September 30, 2005 were 54% versus 52% during the three months endedSeptember 30, 2004. 

 

18

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*** ***

**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

**($ IN THOUSANDS)**

*** ***

***SELLING, GENERAL AND ADMINISTRATIVE(SG&A).***SG&Aexpenses were relatively flat for the three months ended September 30,2005 compared with the three month ended September 30, 2004. SG&A costincreases due to higher costs associated with our current year acquisitions, andwere offset by actions taken by management to contain costs during the firstquarter of 2005.  As a percentage ofrevenues, SG&A decreased to 29% for the three months endedSeptember 30, 2005, down from 33% for the three months endedSeptember 30, 2004. We have and expect to continue to invest in sales andmarketing initiatives in order to drive our top-line growth while continuing tofocus on cost containment measures in other elements of SG&A.

 

***RESEARCH AND DEVELOPMENT (R&D).***R&D expenses decreased by 20% for thethree months ended September 30, 2005 compared with the three months endedSeptember 30, 2004.  As a percentageof revenues, R&D expenses decreased to 1% for the three months endedSeptember 30, 2005, from 2% for the three months ended September 30,2004, due to reduced R&D spending. Gross R&D spending (R&D expensesplus additions to capitalized software development costs) decreased 25% from$3,686 for the three months ended September 30, 2004 to $2,749 for thethree months ended September 30, 2005. Gross R&D decreased due to thedeployment of resources to revenue-generating projects and the savings relatedto our offshore initiative. 

 

***AMORTIZATION OF ACQUIRED INTANGIBLE ASSETS.***Amortization of acquired intangible assetsdecreased 21% from the comparable three months ended September 30, 2004.The decrease primarily reflects certain intangible assets related to the SAI andSynavant acquisitions which were fully amortized as of June 30, 2005, partiallyoffset by additional amortization of intangibles related to the Schwarzeck,Buzzeo and Optas acquisitions.

 

***OTHER OPERATING (INCOME).***We received insurance proceeds related tothe recovery of costs of certain previous losses in the three month periodended September 30, 2004.

 

***PROVISION FOR INCOME TAXES.***Our effective income tax expense rateremained flat at 38.5% for the three months ended September 30, 2005 and2004. We expect our annualized effective income tax expense rate for the yearending December 31, 2005 to be approximately 38.5%.

 

**NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004**

 

**REVENUES**

 
| ** **                 | ** ** | **NINEMONTHS ENDED** | ** ** | **$ Increase** | ** ** | **%**          | ** ** | **2005 %**     | ** ** | **2004 %**   | ** ** |
|----------------------------|------------|----------------------|------------|---------------------|------------|----------------|------------|----------------|------------|--------------|------------|
| ** **                 | ** ** | **SEPTEMBER 30,**    | ** ** | **/**               | ** ** | **Increase /** | ** ** | **of Total**   | ** ** | **of Total** | ** ** |
| ** **                 | ** ** | **2005**             | ** ** | **2004**            | ** ** | **(Decrease)** | ** ** | **(Decrease)** | ** ** | **Revenues** | ** ** | **Revenues** | ** ** |
| Services & Technology: |       |                 |       |                |       |           |       |           |       |         |       |   |   |
| Sales solutions            |       | $                    | 239,527    |                | $          | 214,673        |       | $              | 24,854     |         | 12         | % | 73 | % | 73 | % |
| Marketing solutions        |       | 75,757               |       | 67,847              |       | 7,910          |       | 12             | %          | 23           | %          | 23 | % |
| Shipping                   |       | 13,589               |       | 11,879              |       | 1,710          |       | 14             | %          | 4            | %          | 4 | % |
| Total revenues             |       | $                    | 328,873    |                | $          | 294,399        |       | $              | 34,474     |         | 12         | % | 100 | % | 100 | % |

 

Totalrevenues of $328,873 increased by 12% for the nine months ended September 30,2005 compared with the nine months ended September 30, 2004.   Our international revenues were $122,082, orapproximately 37% of total revenues for the period, and increased by 7% over2004, due to our recent acquisitions and organic growth.  Total revenues in the United States increasedby 14% from the nine months ended September 30, 2004, and were $206,791,or approximately 63% of total revenues. The increase in the United States resulted from a non-recurring project,$4,000 of revenue associated with the early termination of a contract withOdyssey, which was a mid-tier domestic client that has ceased operating in theUnited States, and the addition of revenues from our current year acquisitions.

 

Ourcurrent business is subject to a higher level of seasonal fluctuation than wehave experienced in the past. Specifically, our European business and our interactive marketingbusiness in the United States have historically experienced a seasonal slowdownduring the summer months.

 

***Sales Solutions***

 

Salessolutions accounted for approximately 73% of total revenues during the ninemonths ended September 30, 

 

19

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**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

**($ IN THOUSANDS)**

 

2005,and increased by approximately 12% compared with the nine months ended September 30,2004.  Sales solution services in theUnited States increased by 15%, which included $4,000 associated with the earlytermination of a contract with Odyssey, as well as an increase in help desk, assetmanagement, and implementation services which were primarily driven by anon-recurring project and the addition of sales support services from ourBuzzeo acquisition.  Our internationalsales solutions services were flat, with sales solutions services increasing byapproximately 5% which was mostly offset by a decrease in license fees of ourinternational business versus the nine months ended September 30, 2004.

 

***Marketing Solutions***

 

Marketingsolutions accounted for approximately 23% of total revenues during the ninemonths ended September 30, 2005, and increased by approximately 12%compared with the nine months ended September 30, 2004.  The increase was mostly due to growth in ourinternational marketing solutions business, which increased by 19% over theprior year, including from 32% growth in our international interactivemarketing services.  The growth ininternational interactive marketing included the additional revenues from our2004 acquisitions as well as organic growth. In the United States, marketing solutions increased by approximately 4%compared with the nine months ended September 30, 2004, due to increasesin interactive marketing and the inclusion of marketing services from ourBuzzeo acquisition, which was partially offset by a decrease in our domestic clinical,data and consulting revenues.

 

***Shipping***

 

Shippingrevenues accounted for approximately 4% of total revenues during the ninemonths ended September 30, 2005, and increased by approximately 14%compared with the nine months ended September 30, 2004.  Shipping revenues contribute little to nomargin, and increased primarily as a result of higher pass-through shippingcosts related to the growth in our interactive marketing business.

 

**OPERATING COSTS &EXPENSES**

 
| ** **                                 | ** ** | **NINEMONTHS ENDED** | ** ** | **$**          | ** ** | **%**          | ** ** | **2005 %**     | ** ** | **2004 %**   | ** ** |
|--------------------------------------------|------------|----------------------|------------|----------------|------------|----------------|------------|----------------|------------|--------------|------------|
| ** **                                 | ** ** | **SEPTEMBER 30,**    | ** ** | **Increase /** | ** ** | **Increase /** | ** ** | **of Total**   | ** ** | **of Total** | ** ** |
| ** **                                 | ** ** | **2005**             | ** ** | **2004**       | ** ** | **(Decrease)** | ** ** | **(Decrease)** | ** ** | **Revenues** | ** ** | **Revenues** | ** ** |
| Operating costs (including shipping)       |       | $                    | 173,732    |           | $          | 151,807        |       | $              | 21,925     |         | 14         | % | 53 | % | 52 | % |
| Selling, general and administrative        |       | 103,258              |       | 98,923         |       | 4,335          |       | 4              | %          | 31           | %          | 34 | % |
| Research and development                   |       | 4,615                |       | 7,417          |       | (2,802         | )          | -38            | %          | 1            | %          | 3 | % |
| Facility and other charges                 |       | 9,372                |       | —         |       | 9,372          |       | N/A            |       | 3            | %          | 0 | % |
| Amortization of acquired intangible assets |       | 3,340                |       | 3,467          |       | (127           | )          | -4             | %          | 1            | %          | 1 | % |
| Other operating (income)                   |       | —               |       | (707           | )          | 707            |       | -100           | %          | —       |       | — |   |
| Total operating costs & expenses       |       | $                    | 294,317    |           | $          | 260,907        |       | 33,410         |       | 13           | %          | 89 | % | 89 | % |
|                                            |            |                      |            |                |            |                |            |                |            |              |            |  |  |  |  |  |

 

 

 

 

***OPERATING COSTS (including shipping).***Operating costs increased14% for the nine months ended September 30, 2005 compared with the ninemonths ended September 30, 2004. This increase was due to higher costs from our current year acquisitionsand a full nine months of costs related to our 2004 acquisitions of MDM andSchwarzeck, higher pass-through postage costs and our overall increase inrevenues.  These increases were partiallyoffset by the savings related to our offshore initiative. As a percentage ofrevenues, including the impact of the early termination of the contract withOdyssey, operating costs during the nine months ended September 30, 2005were 53% versus 52% during the nine months ended September 30, 2004. Weanticipate realizing additional savings in future periods as we continue tobuild our offshore presence.

 

***SELLING, GENERAL AND ADMINISTRATIVE(SG&A).***SG&Aexpenses increased 4% for the nine months ended September 30, 2005compared with the nine month ended September 30, 2004. SG&A costsincreased due to higher costs from our current year acquisitions and a fullnine months of costs related to our 2004 acquisitions of MDM and Schwarzeck , aswell as an increased expenses as a result of our efforts to comply withSarbanes-Oxley section 404 review, testing and attestationrequirements.  As a percentage ofrevenues, including the impact of the early termination of the contract withOdyssey, SG&A  decreased to 31% forthe nine months ended September 30, 2005, down from 34% for the ninemonths ended September 30, 2005.  We haveand expect to continue to invest in sales and marketing initiatives in order todrive our top-line growth while continuing to focus on cost containmentmeasures in other elements of SG&A.

 

***RESEARCH AND DEVELOPMENT (R&D).***R&D expenses decreased 38% for the ninemonths ended September 30, 2005 compared with the nine months ended September 30,2004.  As a percentage of revenues,R&D expenses decreased to 1% for 

 

20

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**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

**($ IN THOUSANDS)**

 

thenine months ended September 30, 2005 from 3% for the nine months ended September 30,2004. The decrease was due to decreased R&D spending and a substantiallyhigher capitalization rate during the nine months ended September 30,2005. We capitalized more costs in the nine months ended September 30,2005 due to the development of our release of the next generation CRMsolutions. Gross R&D spending (R&D expenses plus additions tocapitalized software development costs) decreased 26% from $11,504 for the ninemonths ended September 30, 2004, to $8,460 for the nine months endedSeptember 30, 2005. Gross R&D decreased due to the deployment ofresources to revenue-generating projects and the savings related to ouroffshore initiative. 

 

***FACILITY AND OTHER CHARGES.***During the nine months ended September 30,2005, we recorded $7,649 of facility-related charges and a severance charge of$1,723. The facility charges consist of $6,619 related to vacating a New Jerseyfacility and for additional facilities vacated in previous periods due tochanges in current market conditions, as well as $1,030 related to thewrite-off of leasehold improvements associated with the exit of our New Jerseyfacility.  The $1,723 severance chargerelates to the elimination of certain senior and mid-level management positionsduring the three months ended March 31, 2005.

 

***AMORTIZATION OF ACQUIRED INTANGIBLE ASSETS.***Amortization of acquired intangible assets decreased4% over the comparable nine months ended September 30, 2004. The increasereflects a full current period’s amortization of intangible assets acquired inconnection with our acquisitions of MDM, Schwarzeck and Buzzeo, offset bycertain intangible assets related to the SAI, Synavant and Uto Brainacquisitions being fully amortized during or prior to the nine months ended September 30,2005.

 

***OTHER OPERATING (INCOME).***We received proceeds of $707 related to insurance claims during the ninemonths ended September 30, 2004.

 

***PROVISION FOR INCOME TAXES. ***Our effective income tax expense rate remained flat at 38.5% for the ninemonths ended September 30, 2005 and 2004. We expect our annualizedeffective income tax expense rate for the year ending December 31, 2005 tobe approximately 38.5%.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Asof September 30, 2005, working capital was $79,011 compared to $68,058 as ofDecember 31, 2004. Cash and cash equivalents were $64,618 as of September 30,2005, compared to $64,020 as of December 31, 2004. These increases wereprimarily attributable to the cash generated by operating activities partiallyoffset by payments made in connection with our 2005 and 2004 acquisitions aswell as the previously communicated increase in capital expenditures during thenine months ended September 30, 2005.

 

Wefinance our business primarily through cash generated by operations. Net cashprovided by operating activities was $39,829 and $36,874 for the nine monthperiods ended September 30, 2005 and 2004, respectively. During the ninemonths ended September 30, 2005, we generated operating cash from our netincome adjusted for changes in assets and liabilities, net of effects fromacquisitions. Our accrued facility and other charges resulted in lower netincome for the nine months ended September 30, 2005, however, these chargesonly had an approximate $1,700 negative impact on our operating cash flows forthe nine months ended September 30, 2005. Future payments of theseaccruals will continue to have a negative impact on future operating cashflows.  Impacting our operating cash flowwere payments of income taxes and purchase accounting restructuring charges.During the three months ended September 30, 2005, our accounts receivabledays sales outstanding decreased to 60, from 62 days for the three months endedDecember 31, 2004 due to improved cash collections.

 

Duringthe nine months ended September 30, 2004, we generated operating cash fromnet income adjusted for changes in assets and liabilities, net of effects fromacquisitions.  This increase in operatingcash flow was partially offset by $5,606 of payments related to accruedpurchase accounting restructuring charges incurred in connection the Synavantand SAI acquisitions as well as increased payments of accounts payable andaccrued expenses. Our accounts receivable days sales outstanding decreased to63 days for the three months ended September 30, 2004, from 68 days forthe three months ended December 31, 2003. 

 

Cashused in investing activities was $47,917 for the nine months endedSeptember 30, 2005, and includes payments for the Optas, Buzzeo and UtoBrain acquisitions, as well as additions to capitalized software developmentcosts and purchases of property and equipment. Additions of property andequipment primarily related to our new hardware facility in New Jersey, newcorporate headquarters in New Jersey and new international facilities, as wellas investing in our helpdesk automation process and interactive marketingmachinery.  Cash used in investingactivities was $24,320 for the nine months ended September 30, 2004, andwas primarily attributable to purchases of property and equipment related tothe relocation of 

 

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**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

**($ IN THOUSANDS)**

 

ourcorporate headquarters, as well as payments made related to the MDM and UtoBrain acquisitions.

 

Asanticipated, purchases of property and equipment increased for the nine monthsended September 30, 2005 versus the comparable prior year period. During2005, we currently expect capital spending in the range of approximately $24,000to $26,000 primarily to support our infrastructure expansion, as well as forthe consolidation of our New Jersey based, U.S. hardware facility. We reviewour capital expenditure program periodically and adjust it as required to meetcurrent needs.

 

Cashprovided by financing activities was $9,697 for the nine months endedSeptember 30, 2005, and includes proceeds from the issuance of commonstock partially offset by payments related to capital lease obligations.  Cash provided by financing activities was$3,023 for the nine months ended September 30, 2004, and was primarilyattributable to the issuance of common stock partially offset by the repaymentsof long-term debt and loans acquired in connection with the Uto Brainacquisition.

 

Weregularly evaluate opportunities to acquire products or businessescomplementary to our operations. Such acquisition opportunities, if they arise,may involve the use of cash, equity or debt instruments. We believe thatavailable funds, anticipated cash flows from operations and the availability ofour revolving line of credit will satisfy our current projected working capitaland capital expenditure requirements, exclusive of cash required for possiblefuture acquisitions of businesses, products and technologies, during the nexttwelve to eighteen months. There can be no assurance, however, that ourbusiness will continue to generate cash flow at current levels or that anticipatedoperational improvements will be achieved. Our ability to generate future cashflows depends on our future performance and financial results, which, to acertain extent, are subject to general conditions in or affecting thepharmaceutical and life sciences industry and to general economic, political,financial, competitive and regulatory factors beyond our control.

 

**Contractual Obligations and Commitments**

 

The June 16, 2003 line-of-credit agreement withJPMorgan Chase, amended September 24, 2004, expired on July 1,2005.  On July 25, 2005, we enteredinto a replacement line-of-credit agreement (the “Agreement”), in the amount of$30,000 with JPMorgan Chase Bank that expires on June 30, 2008. TheAgreement is available to finance working capital needs and possible futureacquisitions. The Agreement contains customary affirmative and negativecovenants and also contains certain financial covenants, including thoserelated to (a) a maximum leverage ratio at the end of any fiscal quarter,(b) a minimum interest coverage ratio at the end of any fiscal quarter and(c) a minimum fixed charge coverage ratio at the end of any fiscalquarter. The Agreement also restricts our ability to create or assume liens,dispose of assets, consolidate or merge, extend credit, incur otherindebtedness or pay cash dividends. As of September 30, 2005, our consolidated net worth was $260,196,we were in compliance with all covenants and did not have any amountsoutstanding under the line-of-credit. 

 

Ourprincipal commitments atSeptember 30, 2005 consisted primarily of obligations under operating andcapital leases as well as future minimum guarantees to certain vendors. Futureminimum payments on these obligations are as follows:
| ** **                  | ** ** | ** ** | ** ** | **Payments Due by Period** | ** ** |
|-----------------------------|------------|------------|------------|----------------------------|------------|
| ** **                  | ** ** | ** ** | ** ** | **October 1, 2005**        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                  | ** ** | ** ** | ** ** | **through**                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                  | ** ** | ** ** | ** ** | **December 31,**           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Contractual Obligations** | ** ** | **Total**  | ** ** | **2005**                   | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **Thereafter** | ** ** |
| Capital leases              |       | $          | 3,741      |                       | $          | 402 |   | $ | 1,738 |   | $ | 1,547 |   | $ | 54 |   | $ | — |   | $ | — |   |
| Corporate headquarters      |       | 193        |       | 193                        |       | — |   | — |   | — |   | — |   | — |   |
| Minimum guarantees          |       | 2,832      |       | 2,195                      |       | 355 |   | 282 |   | — |   | — |   | — |   |
| Buzzeo purchase price       |       | 1,615      |       | —                     |       | 1,615 |   | — |   | — |   | — |   | — |   |
| Operating leases (1)        |       | 100,967    |       | 5,764                      |       | 17,965 |   | 15,485 |   | 12,333 |   | 11,352 |   | 38,068 |   |
| Total                       |       | $          | 109,348    |                       | $          | 8,554 |   | $ | 21,673 |   | $ | 17,314 |   | $ | 12,387 |   | $ | 11,352 |   | $ | 38,068 |   |

 

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(1)           Operating lease amounts disclosed aboveinclude $17,343 of future operating lease costs, excluding estimated futuresublease income, accrued for in accrued facility charges and in the purchaseaccounting restructuring accruals related to the Synavant and SAI acquisitions.

 

Asof September 30, 2005, letters of credit for approximately $5,721 wereoutstanding related to deposits on certain facilities.

 

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**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

**($ IN THOUSANDS)**

 

Wehave an agreement with a venture capital fund with a commitment to contribute$1,000 to the fund, callable at the discretion of the general partner in $100increments. As of September 30, 2005, $500 has been paid, with $500 of thecommitment remaining. The agreement has a termination date of December 11,2010, subject to extension with the consent of a majority in interest of thelimited partners. This asset is recorded within other assets in theaccompanying consolidated balance sheets.

 

### **FACTORS THAT MAY AFFECT FUTURE RESULTS**

###  

Setforth in this Form 10-Q are certain risks and uncertainties that couldcause our actual results to differ materially from the forward-lookingstatements contained in this Form 10-Q. You are strongly urged tocarefully consider the cautionary language and risks set forth below.

 

**WE DEPEND ON A FEW MAJOR CUSTOMERS FOR A SIGNIFICANTPORTION OF OUR REVENUES**

 

Historically,a limited number of our customers have contributed a significant percentage ofour revenues. We anticipate that our operating results in any given period willcontinue to depend significantly upon revenues from a small number ofcustomers. The loss of any of these customers (which could include loss throughmergers and acquisitions) could have a materially adverse effect on ourbusiness, operating results or financial condition. We cannot make anyassurances that we will retain our existing customers or attract new customersthat would replace the revenue that could be lost if one or more of thesecustomers failed to renew itsagreement(s) with us.

 

**OUR BUSINESS IS HEAVILY DEPENDENT ON THE PHARMACEUTICAL INDUSTRY**

 

Mostof our solutions are currently used in connection with the marketing and saleof prescription-only drugs. This market is undergoing a number of significantchanges. These changes include:

 

•                  the significant and continuing consolidation of thepharmaceutical industry which may reduce the number of our existing andpotential customers;

 

•                  regulatory changes that permit the over-the-counter sale offormerly prescription-only drugs;

 

•                  U.S. and international governmental regulations mandatingprice controls;

 

•                  increasing Food and Drug Administration activism; and

 

•                  competitive pressure on the pharmaceutical industryresulting from the continuing shift to delivery of healthcare andpharmaceuticals through managed care organizations.

 

                We cannot assure you that we canrespond effectively to any or all of these and other changes in themarketplace. Our failure to do so could have a material adverse effect on ourbusiness, operating results or financial condition, as our business depends, inlarge part, on the business conditions within this marketplace.

 

**OUR CUSTOMERS MAY NOT SUCCESSFULLY IMPLEMENT OUR PRODUCTS**

 

Ourcustomers often implement our products in stages and our products are oftenutilized by a large number of our customers’ personnel. In the event that ourcustomers have difficulties implementing our products and services or are notsatisfied with the implementation or operation our products and services, ourbusiness, operating results and financial condition could be materially andadversely affected.

 

**WE FACE RISKS ASSOCIATED WITH OUR ACQUISITIONS**

 

Ourbusiness may be materially and adversely affected as a result of thesignificant risks associated with our acquisitions, including our recentacquisitions ofUto Brain, the MDM group of companies, Schwarzeck,Buzzeo and Optas.As part of our business strategy, we have acquired, and in the future mayacquire, businesses that offer complementary products, services ortechnologies. These acquisitions are accompanied by substantial risks,including:

 

•                  unexpected problems, liabilities, risks or costs associatedwith the acquired business;

 

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**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

**($ IN THOUSANDS)**

 

•                  the effect of the acquisitions on our financial andstrategic position;

 

•                  our inability to successfully integrate the acquiredbusiness;

 

•                  the failure of an acquired business to further ourstrategies;

 

•                  our inability to achieve expected cost and businesssynergies;

 

•                  the significant strain on our operating systems;

 

•                  the diversion of our management’s attention from otherbusiness concerns;

 

•                  the impairment or loss of relationships with customers ofthe acquired business;

 

•                  the negative impact of the combination of differentcorporate cultures;

 

•                  the loss of key employees of the acquired company;

 

•                  undetected problems within the acquired organization; and

 

•                  the integration and maintenance of uniform, company-widestandards, procedures and policies.

 

Anyof these factors could have a material adverse effect on our revenues andearnings. We expect that the consideration paid for future acquisitions, ifany, could be in the form of cash, equity, debt or a combination of these. Tothe extent that we issue shares of stock or other rights to purchase stock inconnection with any future acquisition, existing shareholders will experiencedilution and potentially decreased earnings per share.

 

Whileto date we have had success integrating acquired entities into our operations,we cannot guarantee that we will successfully integrate these new businessesinto our operations or achieve any expected cost synergies.

 

Wemay in the future acquire additional complementary companies, products ortechnologies. If we do so, we may face the same risks, uncertainties anddisruptions discussed above. In addition, our profitability may suffer becauseof acquisition-related costs or amortization costs of acquired intangibleassets.

 

**BUSINESS AND ECONOMIC PRESSURES ON OUR MAJOR CUSTOMERS MAY CAUSE ADECREASE IN DEMAND FOR OUR NEW PRODUCTS AND SERVICES**

 

Businessand economic pressures on our major customers may result in budget constraintsthat directly impact their ability to purchase our new products and servicesofferings. We cannot assure you that any decrease in demand caused by thesepressures will not have a material adverse effect on our business, operatingresults or financial condition.

 

**OUR LENGTHY SALES AND IMPLEMENTATION CYCLES MAKE IT DIFFICULT TOPREDICT OUR QUARTERLY REVENUES**

 

Theselection of a CRM or SFA solution generally entails an extendeddecision-making process by our customers because of the strategic implications,substantial costs and significant commitment of resources associated with acustomer’s license or implementation of the solution. Given the importance ofthe decision, senior levels of management of our customers are often involvedin the process and, in some instances, their board of directors may also beinvolved. As a result, the decision-making process typically takes nine toeighteen months, and in certain cases longer. In addition, other factors,unrelated to our product and services, such as acquisitions, product delays, orother issues, may also significantly impact the timing and amounts of buyingdecisions. Accordingly, we cannot fully control or predict the timing of ourexecution of contracts with customers. Prior sales and implementation cyclescannot be relied upon as any indication of future cycles.

 

Inaddition, an implementation process of three to six or more months before thesoftware is rolled out to a customer’s sales force is customary. However, if acustomer were to delay or extend its implementation process, our quarterlyrevenues may decline below expected levels and could adversely affect our resultsof operations.

 

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**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

**($ IN THOUSANDS)**

 

**OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE**

 

Ourtotal revenue and operating results may vary significantly fromquarter-to-quarter. The main factors that could cause these fluctuations are:

 

•                  the discretionary nature of our customers’ purchase andbudget cycles;

 

•                  potential delays in recognizing revenue from license andother transactions;

 

•                  seasonal variations in operating results, including theincreased seasonality associated with our international growth; and

 

•                  variations in the fiscal or quarterly cycles of ourcustomers.

 

Inaddition, we establish our expenditure levels for product development, salesand marketing and some of our other operating expenses based in large part onour expected future revenues and anticipated competitive conditions. Inparticular, we frequently add staff in advance of new business to permitadequate time for training. If the new business is subsequently delayed,canceled or not awarded, we will have incurred expenses without the associatedrevenues. We also may increase sales and marketing expenses if competitivepressures become greater than originally anticipated. Since only a smallportion of our expenses varies directly with our actual revenues, our operatingresults and profitability are likely to be adversely and disproportionatelyaffected if our revenues fall below our targeted goals or expectations.

 

Asa result of these and other factors, revenues for any quarter may be subject tofluctuation. You should not rely on our period-to-period comparisons of ourresults of operations as indications of future performance. Our futurequarterly results may from time to time not meet the expectations of marketanalysts or investors, which could have a materially adverse effect on theprice of our common stock.

 

**WE MAY BE UNABLE TO SUCCESSFULLY INTRODUCE NEW PRODUCTS OR RESPONDTO TECHNOLOGICAL CHANGE**

 

Themarket for CRM and SFA products changes rapidly because of frequentimprovements in computer hardware and software technology. Our future successwill depend, in part, on our ability to:

 

•                  use available technologies and data sources to develop newproducts and services and to enhance our current products and services;

 

•                  introduce new solutions that keep pace with developments inour target markets; and

 

•                  address the changing and increasingly sophisticated needsof our customers.

 

Wecannot assure you that we will successfully develop and market new products orproduct enhancements that respond to technological advances in the marketplace,or that we will do so in a timely fashion. We also cannot assure you that ourproducts will adequately and competitively address the needs of the changingmarketplace.

 

Competitionfor software products has been characterized by shortening product cycles. Wemay be materially and adversely affected by this trend if the product cyclesfor our products prove to be shorter than we anticipate. If that happens, ourbusiness, operating results or financial condition could be adversely affected.

 

Toremain competitive, we also may have to spend more of our resources on productresearch and development than we have in the past. As a result, our results ofoperations could be materially and adversely affected.

 

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**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

**($ IN THOUSANDS)**

 

**SOFTWARE ERRORS OR DEFECTS COULD AFFECT OUR REVENUES**

 

Oursoftware products are technologically complex and may contain previouslyundetected errors or failures or errors when products are first introduced orwhen updated versions are released. We cannot assure you that, despite ourtesting, our new products will be free from significant errors. Software errorscould cause delays in the commercial release of products until the errors havebeen corrected. Software errors may cause us to be in breach of our agreementswith customers, which could result in termination of the agreements andmonetary damages. Software errors may cause damage to our reputation and causeus to commit significant resources to their correction. Errors that result intermination of agreements, monetary damages, losses or delays could have amaterial adverse effect on our business, operating results or financialcondition.

 

**INCREASED COMPETITION MAY RESULT IN PRICE REDUCTIONS AND DECREASEDDEMAND FOR OUR PRODUCTS AND SERVICES SOLUTIONS**

 

Thereare a number of other companies that sell CRM and SFA products and relatedservices that specifically target the pharmaceutical industry, includingcompetitors that are actively selling CRM and SFA software products in morethan one country and competitors that also offer CRM and SFA support services.Some of our competitors and potential competitors are part of large corporategroups and have significantly greater financial, sales, marketing, technologyand other resources than we have.

 

Whilewe believe that the CRM and SFA software products and/or services offered bymost of our competitors do not address the variety of pharmaceutical customerneeds that our solutions address, increased competition may require us toreduce the prices for our products and services. Increased competition may alsoresult in decreased demand for our products and services.

 

Webelieve our ability to compete depends on many factors, some of which arebeyond our control, including:

 

•                  the number and success of new market entrants supplyingcompeting CRM and SFA products or support services;

 

•                  alliances among existing competitors;

 

•                  technological changes or changes in the our customers’ useof the Internet;

 

•                  expansion of product lines by, or consolidation among, ourexisting competitors; and

 

•                  development and/or operation of in-house CRM or SFAsoftware products or services by our customers and potential customers.

 

Anyone of these factors can lead to price reductions and/or decreased demand andwe cannot assure you that we will be able to continue to compete successfullyor that competition will not have a material adverse effect on our business,operating results or financial condition.

 

**WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN THE INTERNET-RELATEDPRODUCTS AND SERVICES MARKET NOR CAN WE PROVIDE ASSURANCES THAT THE DEMAND FORINTERNET-RELATED PRODUCTS AND SERVICES WILL INCREASE**

 

Thesuccess of parts of our business will depend, in part, on our ability tocontinue developing Internet-related products, modifying and improving ourexisting products and responding to technological advances and changingcommercial uses of the Internet. We cannot assure you that our Internet-relatedproducts and services will adequately respond to such technological advances andchanging uses. Nor can we assure you that the demand for our Internet-relatedproducts and services will increase.

 

Commercialuse of the Internet raises potential problems with security, privacy,reliability, accessibility, quality of service and government regulation. Theseissues, if unresolved, may affect the use of our Internet-related products. Ifthese potential problems arise, our business, financial condition or results ofoperations could be materially and adversely affected.

 

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**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

**($ IN THOUSANDS)**

 

**OUR INTERNATIONAL OPERATIONS HAVE RISKS THAT OUR DOMESTIC OPERATIONS DONOT**

 

Wehave recently significantly expanded and may in the future further expand ourinternational operations and enter additional international markets. Thisexpansion would require significant management attention and financialresources that could adversely affect operating margins and earnings. We maynot be able to maintain or increase international market demand for ourproducts and services. If we do not, our international sales will be limitedand our business, financial condition or results of operations could bematerially and adversely affected.

 

Thesale of our products and services in foreign countries accounts for, and isexpected in the future to account for, an increasing material part of ourrevenues. These sales are subject to substantial risks inherent ininternational business activities, including:

 

•                  adverse changes in the political stability and economicenvironments in these countries and regions;

 

•                  adverse changes in tax, tariff and trade and otherregulations;

 

•                  the absence or significant lack of legal protection forintellectual property rights in certain of these countries; and

 

•                  difficulties in managing an organization spread on a globalbasis.

 

Eachof the above risks could have a significant impact on our revenues,profitability and our ability to deliver products on a competitive and timelybasis, which could materially and adversely affect our business, financialcondition or operating results.

 

Sincewe have operations in a number of countries and our service agreements in suchcountries are denominated in foreign currencies, we face exposure to adversemovements in foreign currency exchange rates. As currency rates change,translation of the income statements of our international entities from localcurrencies to U.S. dollars affects period-over-period comparability ofoperating results. Historically, we have not hedged these translation risksbecause we generally reinvest our cash flows from international operations.However, we continue to evaluate foreign currency translation risk exposure. Aswe continue to grow our international business, the risks associated withforeign currency translation will also grow.

 

**CATASTROPHIC EVENTS COULD NEGATIVELY AFFECT OUR INFORMATION TECHNOLOGYINFRASTRUCTURE**

 

Theefficient operation of our business, and ultimately our operating performance,depends on the uninterrupted use of our critical business and informationtechnology systems. Many of these systems require the use of specializedhardware and other equipment that is not readily available in the marketplace.Although we maintain these systems at more than one location, a naturaldisaster, a fire or other catastrophic event at any of these locations couldresult in the destruction of these systems. In such an event, the replacementof these systems and restoration of archived data and normal operation of ourbusiness could take several days to several weeks, or more. During theintervening period when our critical business and information technologysystems are fully or partially inoperable, our ability to conduct normalbusiness operations could be significantly and adversely impacted and as aresult our business, operating results and financial condition could beadversely affected.

 

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**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

**($ IN THOUSANDS)**

 

**OUR SUCCESS DEPENDS ON RETAINING OUR KEY SENIOR MANAGEMENT TEAM AND ONATTRACTING AND RETAINING QUALIFIED PERSONNEL**

 

Ourfuture success depends, to a significant extent, upon the contributions of ourexecutive officers and key sales, technical and customer service personnel.

 

Ourfuture success also depends on our continuing ability to attract and retainhighly qualified technical and managerial personnel. Due to competition forsuch personnel, we have at times experienced difficulties in recruiting andretaining qualified personnel and we may experience such difficulties in thefuture. Our ability to expand and increase revenue growth in the future willdepend, in part, on our success in recruiting and training such qualifiedpersonnel. We may not always be able to expand our personnel in these areas asnecessary to support our operations. Any recruiting or retention difficultiescould adversely affect our business, operating results or financial condition.

 

**IF OUR SECURITY MEASURES ARE BREACHED AND AN UNAUTHORIZED PARTY OBTAINSACCESS TO A CUSTOMER’S DATA, CERTAIN OF OUR SOLUTIONS MAY BE PERCEIVED ASBEING INSECURE AND CUSTOMERS MAY CURTAIL OR STOP USING OUR SERVICE.**

 

Certainof our solutions involve the storage and transmission of customers’ proprietaryinformation, and security breaches could expose us to a risk of loss of thisinformation, litigation and potential liability. Because techniques used toobtain unauthorized access or to sabotage systems change frequently andgenerally are not recognized until launched against a target, we may be unableto anticipate these techniques or to implement adequate preventative measures.If an actual or perceived breach of our security occurs, the market perceptionof the effectiveness of our security measures could be harmed and we could loseexisting customers and our ability to obtain new customers.

 

**OUR BUSINESS DEPENDS ON PROPRIETARY RIGHTS THAT WE MAY NOT BE ABLETO PROTECT COMPLETELY**

 

Werely on a combination of trade secret, copyright and trademark laws,non-disclosure, license and other contractual agreements and technical measuresto protect our proprietary rights. We cannot assure you that the steps we takewill prevent misappropriation of these rights. Further, protective actions wehave taken or will take in the future may not prevent competitors fromdeveloping products with features similar to our products. In addition,effective copyright and trade secret protection may be unavailable or limitedin certain foreign countries. In response to customer requests, we have also onoccasion entered into agreements which require us to place our source code inescrow to secure our service and maintenance obligations.

 

Further,while we believe that our products and trademarks do not infringe upon theproprietary rights of any third parties, third parties may assert infringementclaims against us in the future that may result in costly litigation, diversionof management’s attention, the imposition of monetary damages or injunctiverelief against us. In addition, any such claims may require us to enter intoroyalty arrangements. Any of these results could materially and adverselyaffect our business, operating results or financial condition.

 

**IF OUR THIRD-PARTY VENDORS ARE UNABLE TO SUCCESSFULLY RESPOND TOTECHNOLOGICAL CHANGE OR IF WE DO NOT MAINTAIN OUR RELATIONSHIPS WITHTHIRD-PARTY VENDORS, INTERRUPTIONS IN THE SUPPLY OF OUR PRODUCTSMAY RESULT**

 

Someof our software is provided by third-party vendors. If our third-party vendorsare unable to successfully respond to technological change or if ourrelationships with certain third-party vendors are terminated, we mayexperience difficulty in replacing the functionality provided by the third-partysoftware currently offered with our products. Although we believe there areother sources for all of our third-party software, any significant interruptionin the supply of these products could adversely impact our sales unless anduntil we can secure another source. The absence of or any significant delay inthe replacement of functionality provided by third-party software in ourproducts could materially and adversely affect our sales.

 

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**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

**($ IN THOUSANDS)**

 

**THE RESULTS DERIVED FROM CURRENT AND FUTURE STRATEGIC RELATIONSHIPSMAY PROVE TO BE LESS FAVORABLE THAN ANTICIPATED**

 

Weare involved in a number of strategic relationships with third parties and arefrequently pursuing others. Should these relationships, or any of them, proveto be more costly than anticipated or fail to meet revenue expectations orother anticipated synergies, we cannot guarantee that such events will not havea material impact upon our business, operating results or financial condition.

 

**OUR DATA SOLUTIONS ARE DEPENDENT UPON STRATEGIC RELATIONSHIPS WHICH, IFNOT MAINTAINED, COULD UNDERMINE THE CONTINUED VIABILITY OF THESE SOLUTIONS**

 

Ourdata and analytics solutions are sourced, in part, from data provided throughstrategic relationships. Although we believe there are other sources for suchdata, the termination of any of these relationships could diminish the breadthor depth of our data. This termination or our failure to establish newstrategic relationships in the future could negatively impact our business,operating results or financial condition.

 

**FEDERAL AND STATE LAWS AND REGULATIONS COULD DEPRESS THE DEMAND FORSOME OF OUR SOLUTIONS**

 

Whilewe believe our data and analytics solutions are not in violation of currentfederal or state laws and regulations pertaining to patient privacy or healthinformation, including the Health Insurance Portability and Accountability Actof 1996 (HIPAA), we cannot guarantee that future laws or regulations orinterpretations of existing laws and statutes will not impact negatively uponour ability to market these solutions or cause a decrease in demand for suchsolutions from customers that see an increased risk in any such new laws orregulations.

 

**GOVERNMENTAL REGULATION MAY MATERIALLY AND ADVERSELY AFFECT OURABILITY TO DISTRIBUTE CONTROLLED SUBSTANCES THROUGH THE MAIL**

 

Throughthe interactive marketing business we acquired in the Synavant acquisition, wemay distribute controlled substances to doctors’ offices through the mail aspart of certain interactive marketing programs provided on behalf ofpharmaceutical manufacturers. It is important to the business that thispractice of distributing prescription-only drugs continues. Future legislationmay restrict our ability to provide these types of services. If any suchlegislation is enacted, it could have a material and adverse effect on ourbusiness, operating results and financial condition.

 

**DIFFICULTIES IN SUBLEASING OR OTHERWISE DISPOSING OF CERTAIN OF OURFACILITIES MAY NEGATIVELY IMPACT UPON OUR EARNINGS**

 

Weexpect to sublease all or a portion of certain facilities, including facilitiesacquired as part of the Synavant acquisition. An inability to successfullydispose of or sublet, as applicable, any of these facilities or to obtainfavorable pricing or sublease terms could negatively impact our earnings.

 

**UNANTICIPATED CHANGES IN OUR ACCOUNTING POLICIES MAY BE REQUIREDBECAUSE OF MANDATES BY ACCOUNTING STANDARDS SETTING ORGANIZATIONS AND COULDHAVE A MATERIAL IMPACT ON OUR FINANCIAL STATEMENTS**

 

Inreporting our financial results we rely upon the accounting policies andstandards then in effect at the time of our report. Future regulations, standardsor interpretations may require us to adjust or restate financial resultspreviously reported. A required restatement could have a material impact uponpast financial results or current comparison to previous results.

 

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**ITEM 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

**($ IN THOUSANDS)**

 

**WE MAY FACE RISKS ASSOCIATED WITH EVENTS WHICH MAY AFFECT THEWORLD ECONOMY**

 

Worldevents such as terrorist attacks, the current U.S. military action in theMiddle East and elsewhere, and hostilities in the Middle East, Asia and othergeographical areas, have and may in the future weaken the U.S. and worldeconomies. Any resultant weaknesses in these economies may adversely affect ourbusiness, financial condition or results of operations or the businesses of ourcustomers.

 

**WE FACE RISKS IN CONNECTION WITH IMPLEMENTING THE REQUIREMENTS OFSECTION 404 OF THE SARBANES OXLEY ACT**

 

Wecontinue to be involved in the process of evaluating our internal control overfinancial reporting in order to allow management to report on, and ourregistered independent public accounting firm to attest to, our internalcontrols, as required by Section 404 of the Sarbanes-Oxley Act. This is acontinuing process and we cannot be certain as to the timing of completion ofour future reviews, evaluation, testing and remediation actions or the impactof the same on our operations or the results of the required testing andrequired attestation report by us and also by our registered independent publicaccounting firm. If at any time we are unable to implement the requirements ofSection 404 in a timely manner or with adequate compliance, we may be subjectto sanctions or investigation by regulatory authorities, such as the Securitiesand Exchange Commission or NASDAQ. Any such actions could have a materialadverse affect our financial results and the price of our common stock.

 

**PROVISIONS OF OUR CHARTER DOCUMENTS AND NEW JERSEY LAWMAY DISCOURAGE AN ACQUISITION OF DENDRITE**

 

Provisionsof our Restated Certificate of Incorporation, as amended, our By-laws, asamended, and New Jersey law may make it more difficult for a third-party toacquire us. For example, the Board of Directors may, without the consent of thestockholders, issue preferred stock with rights senior to those of the commonstock. In addition, we have a Shareholder Rights Plan which may limit theability of a third-party to attempt a hostile acquisition of the Company.

 

**OUR COMMON STOCK MAY BE SUBJECT TO PRICE FLUCTUATIONS**

 

Themarket price of our common stockmay be significantly affected by the following factors:

 

•                  theannouncement or the introduction of new products and services by us or ourcompetitors;

 

•                  quarter-to-quartervariations in our operating results or changes in revenue or earnings estimatesor failure to meet or exceed revenue or earnings estimates;

 

•                  marketconditions in the technology, healthcare and other growth sectors;

 

•                  generalconsolidation in the healthcare information industry which may result in themarket perceiving us or other comparable companies as potential acquisitiontargets;

 

•                  thegain or loss of significant orders;

 

•                  changesin the domestic and international economic, political and business conditions;and

 

•                  futureacquisitions.

 

Further,the stock market has experienced on occasion extreme price and volumefluctuations. The market prices of the equity securities of many technologycompanies have been especially volatile and often have been unrelated to theoperating performance of such companies. These broad market fluctuations mayhave a material adverse effect on the market price of our common stock.

 

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**ITEM 4.  Controls andProcedures**

 

TheCompany’s Chief Executive Officer and Interim Chief Financial Officer, with theassistance of other members of the Company’s management, have evaluated theeffectiveness of the Company’s disclosure controls and procedures, as definedin Rules 13a-15(e) and 15d-15(e) under the Securities andExchange Act of 1934 as amended, as of the end of the period covered by thisForm 10-Q.  Based on suchevaluation, the Company’s Chief Executive Officer and Interim Chief FinancialOfficer have concluded that the Company’s disclosure controls and proceduresare effective.

 

TheCompany’s Chief Executive Officer and Interim Chief Financial Officer have alsoconcluded that there have been no changes in the Company’s internal controlover financial reporting during the quarter ended September 30, 2005 thathave materially affected, or are reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

Asof September 1, 2005, we transitioned our financial reporting consolidationsystem to a new platform.  Implementationof the new system necessarily involves changes to our procedures for controlover financial reporting.  The new systemwas subjected to testing prior to and after September 1, 2005.  We have not experienced any significantdifficulties to date in connection with the implementation or operation of thenew system.

 

PART II.  OTHER INFORMATION

 

**ITEM 5.**  **Other Information**

 

The following is disclosed pursuant to therequirements of Form 8-K under Item 1.01 and Item 1.02 of Form 8-Kand is in satisfaction of such requirements.

 

On November 4, 2005, theCompany and Paul Zaffaroni entered into a Retirement Agreement and GeneralRelease, dated as of November 4, 2005 (the “Agreement”).  The Agreement supersedes Mr. Zaffaroni’spreviously filed Employment Agreement, dated as of May 16, 2001 (the“Employment Agreement”).  Pursuant to theAgreement, unless his employment is terminated for Cause (as defined in theEmployment Agreement), Mr. Zaffaroni will continue to serve as an employee ofthe Company through March 31, 2006 and will continue to receive his base salaryand benefits.  Commencing April 1, 2006,unless terminated for Cause, Mr. Zaffaroni will continue to render services asthe Company may reasonably request through March 31, 2007 and in return will bepaid his base salary through such date. 

 

Mr. Zaffaroni will beeligible to continue to participate in the Executive Incentive Plan until theend of calendar year 2005 at which time he will no longer be entitled toparticipate in the Executive Incentive Plan or any other bonus plan.  In addition, through the earlier of (i) March31, 2007 and (ii) the date Mr. Zaffaroni may secure other full-time employment(the “Retirement Date”), Mr. Zaffaroni will be eligible for (i) continued stockoption vesting for stock options which were previously granted to him, (ii)participation in the deferred compensation plan, and (iii) participation in theCompany’s 401(k) plan and stock purchase plan. Dendrite will also reimburse Mr. Zaffaroni for future, documentedrelocation costs up to $200,000 and for certain costs already incurred in therefinancing of his current residence.

 

Mr. Zaffaroni’s healthcoverage under the Company’s group health plan will terminate on the RetirementDate, at which time Mr. Zaffaroni will be provided an opportunity to continuehealth coverage for himself and qualifying dependents under the Company’s grouphealth plan in accordance with the Consolidated Omnibus Budget ReconciliationAct (“COBRA”).  

 

Mr. Zaffaroni will continueto be eligible for life insurance coverage under Dendrite’s policy through theRetirement Date.  As soon as practicablefollowing the Retirement Date, the ownership of the insurance policy securingMr. Zaffaroni’s account balance under Dendrite’s nonqualified deferredcompensation plan shall be transferred from Dendrite to Mr. Zaffaroni.

 

A copy of the Agreement is attached as Exhibit 10.8.

 

**ITEM 6.****                Exhibits**

 

10.1   Amendment dated July 1, 2005 to Credit Agreement,dated as of June 16, 2003, and as amended September 24, 2004 among DendriteInternational, Inc., the Lenders party hereto, and JPMorgan Chase Bank, incorporated by reference tothe Company’s Current Report on Form 8-K filed on July 7, 2005.

 

10.2    Credit Agreement, dated July 25,2005, among Dendrite International, Inc., the Lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, incorporated by reference tothe Company’s Current Report on Form 8-K filed on July 29, 2005.

 

10.3    The Dendrite International, Inc. NewHire Authorization, as amended, incorporated by reference to the Company’s CurrentReport on Form 8-K filed on September 21, 2005.

 

10.4    New Hire Authorization - Form ofNotice of Stock Option Award; Nonqualified Stock Option Agreement, incorporated by reference to theCompany’s Current Report on Form 8-K filed on September 21, 2005.

 

10.5   NewHire Authorization - Forms of Restricted Stock [Units] Agreement, incorporated by reference to theCompany’s Current Report on Form 8-K filed on September 21, 2005.

 

10.6   LetterAmendment between Dendrite International, Inc. and George T. Robson, datedSeptember 27, 2005, incorporatedby reference to the Company’s Current Report on Form 8-K filed on October 3,2005.

 

10.7   Employment Agreement between the Companyand Joseph A. Ripp dated October 5, 2005.

 

10.8   Retirement Agreement andGeneral Release between the Company and Paul L. Zaffaroni dated November 4,2005.

 

31.1    Certification of John E. Bailye, Chairmanof the Board and Chief Executive Officer of the Company, pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.

 

31.2    Certification of George T. Robson,Interim Chief Financial Officer of the Company, pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002.

 

32       Certifications of John E. Bailye,Chairman of the Board and Chief Executive Officer of the Company, and George T.Robson, Interim Chief Financial Officer of the Company pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

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Signatures

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

Date:November 7, 2005

 
|   | By:    | /s/  John E. Bailye                                                              |   |
|--------|--------|----------------------------------------------------------------------------------|--------|
|   |   | John  E. Bailye,                                                                 |
|   |   | Chairman  of the Board and Chief Executive Officer (Principal Executive Officer) |
|   |   |                                                                             |
|   | By:    | /s/  Brent J. Cosgrove                                                           |   |
|   |   | Brent  J. Cosgrove,                                                              |
|   |   | Vice  President and Corporate Controller  (Principal Accounting Officer)         |

 

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**EXHIBIT INDEX**

 

10.1   Amendment dated July 1, 2005 to Credit Agreement,dated as of June 16, 2003, and as amended September 24, 2004 among DendriteInternational, Inc., the Lenders party hereto, and JPMorgan Chase Bank, incorporated by reference tothe Company’s Current Report on Form 8-K filed on July 7, 2005.

 

10.2    Credit Agreement, dated July 25, 2005,among Dendrite International, Inc., the Lenders party thereto, and JP MorganChase Bank, N.A., as Administrative Agent, incorporated by reference to theCompany’s Current Report on Form 8-K filed on July 29, 2005.

 

10.3    The Dendrite International, Inc. NewHire Authorization, as amended, incorporated by reference to the Company’s CurrentReport on Form 8-K filed on September 21, 2005.

 

10.4    New Hire Authorization - Form ofNotice of Stock Option Award; Nonqualified Stock Option Agreement, incorporated by reference to theCompany’s Current Report on Form 8-K filed on September 21, 2005.

 

10.5   NewHire Authorization - Forms of Restricted Stock [Units] Agreement, incorporated by reference to theCompany’s Current Report on Form 8-K filed on September 21, 2005.

 

10.6   LetterAmendment between Dendrite International, Inc. and George T. Robson, datedSeptember 27, 2005, incorporatedby reference to the Company’s Current Report on Form 8-K filed on October 3,2005.

 

10.7   Employment Agreement between the Companyand Joseph A. Ripp dated October 5, 2005.

 

10.8   Retirement Agreement andGeneral Release between the Company and Paul L. Zaffaroni dated November 4,2005.

 

31.1    Certification of John E. Bailye, Chairmanof the Board and Chief Executive Officer of the Company, pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.

 

31.2    Certification of George T. Robson,Interim Chief Financial Officer of the Company, pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002.

 

32       Certifications of John E. Bailye,Chairman of the Board and Chief Executive Officer of the Company, and George T.Robson, Interim Chief Financial Officer of the Company pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002.

 

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